Don't let the volatile stock market rattle your retirement savings plan

When the stock market plunges, you catch your breath, bite your lip, and try really hard not to think about the value of your retirement account.

That’s just what's happening as Russia invades Ukraine. Investors are nervous, and stocks are tumbling.

For small investors, whose biggest exposure to the stock market is usually their retirement account holdings — 401(k), 403(b), 457 plans, the federal government’s Thrift Savings Plan, and Individual Retirement Accounts (IRAs) — it’s in a word — unnerving.

For advice on how to weather whipsawing markets and manage retirement savings, I asked a handful of investing pros. Here’s their advice followed by mine.


The basic advice: Markets go up and down, and the more years you have until retirement, the less you should be torn up in knots by the turbulence. That’s because historically, the market has rebounded, even after deep drops in value.

Keep in mind, they said, that the Dow was up more than 18.7% in 2021, the broader S&P 500 market index was up 26.9%, and the small-stock, tech-heavy Nasdaq index gained more than 21.4%.

Put your money in ‘buckets’

Think of your retirement assets in buckets when facing a volatile stock market.
Think of your retirement assets in buckets when facing a volatile stock market. (Photo credit: Getty Creative) (Svetl via Getty Images)

“Volatility is uncomfortable, especially as a retiree,” said Zaneilia Harris, a certified financial planner and president of Harris Wealth Management Group in Upper Marlboro, Md. “No one wants to go through watching their account balances fluctuate. However, it is part of the investing process.”

Her advice: “Think of your assets in buckets. Money for now, money for a specific future need, and money for later, ten years or more. Keeping a specific amount in cash to help ride out market fluctuations is extremely important.”

A good time to review your investment portfolio

Lisa A.K. Kirchenbauer, financial planner and founder of Omega Wealth Management in Arlington, Va., is more direct:

“Embrace volatility,” she said. “When the market takes a dive, your periodic 401k/403b contributions are getting to buy into your chosen investment strategy at a cheaper level.”

That’s a good thing. “Given that retirement savings is generally longer-term money, getting the opportunity to buy in on a dip is a benefit that will pay off in the future,” Kirchenbauer said.

Meantime, for your existing retirement contributions that are already invested: “Stay the course,” she advised. “This is long-term money.”

But for those on the cusp of retirement, that may not be the best move.

“If you are retiring in the next year and will need to begin withdrawals from your retirement plan, then you may want to revisit your investment strategy to have cash set aside to meet those needs,” she said.

In a higher interest-rate environment, it’s a good time to own quality value stocks and small and mid-cap value mutual funds, said Clark Kendall, CEO of Kendall Capital in Washington, D.C.

“In today’s market, it is more important than ever to pay attention to valuations, price-to-earnings ratios, price-to-cash flow, and good dividend yields,” Kendall said.

Adjust asset allocation

In today's gyrating stock market, be strategic with asset allocation in your retirement plan.
In today's gyrating stock market, be strategic with asset allocation in your retirement plan. (Photo credit: Getty Creative) (BernardaSv via Getty Images)

Also key: Take five before you make any emotional investment decisions about your retirement funds.

“Look at how your overall retirement funds are invested,” said Catherine Collinson, CEO and president of the Transamerica Institute and its Transamerica Center for Retirement Studies.

Understand your asset allocation from stocks and stock mutual funds to bonds, bond funds and cash, she said. “Most people get upset about the stock market plunging when in reality their retirement accounts have some built in ballast, often with strategic target date funds.”

According to Transamerica Center for Retirement Studies' most recent survey of workers, only 4 in 10 said they know ‘a great deal’ about what asset allocation is and how that impacts their accounts.

My turn

A roller Coaster sweeps up a curving track.
(Photo: Getty Creative) (Miklmar via Getty Images)

Now two pieces of advice from me. Financial education rules the day. Understand why the stock and bond markets are operating the way they are. Trust me, it helps to ease anxiety when you realize it’s not pure madness and mayhem. There are underlying triggers to these corrections.

Create and maintain a balanced portfolio. My retirement funds are stretched out across a range of asset classes, from large companies and dividend-paying stocks to emerging growth firms to global stocks to real estate and bond fund indexes.

A target-date fund, which typically blends low-cost stock and bond index funds, is one way to do this. Balanced index funds are another choice. They both rebalance your holdings automatically when markets fall for a stock and bond allocation that fits your risk tolerance, say 60% stocks and 40% bonds. That means when stocks drop, you’re buying.

So when markets gyrate, yes, I worry, but I know I have built-in guardrails.

A financial advisor acts as a sounding board

A financial advisor you trust can steady your nerves and keep your retirement plan on track.
A financial advisor you trust can steady your nerves and keep your retirement plan on track. (Photo credit: Getty creative) (Kerkez via Getty Images)

Working with an advisor can help you get ready for sinking markets—and stay grounded when they show up. Recently, my advisor calmly reminded my husband, who is on the cusp of 68, and me that we’d taken some of our retirement funds out of equities a few months ago, so we had cash on hand to help cushion a dragged-out downturn. I’d overlooked that.

She then mentioned ways to rebalance and help protect our accounts moving forward and even suggested a few investments we might consider making while the markets were down.

“I’m certainly not taking this lightly,” she told us. “But your portfolio was built with diversification. We’ve been through many of these events before and we will get through this one.”

Editor's note: This article was originally published on Jan. 28, and it was updated on Feb. 24 after Russia invaded Ukraine.

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Kerry is a Senior Reporter and Columnist at Yahoo Money. Follow her on Twitter @kerryhannon

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