When markets get choppy, it pays to have an investing plan and to stick to it.
Here are four strategies that may help you stick with your retirement savings plan during market volatility.
1. Keep perspective: Downturns are normal.
On average over the past 150 years, US stocks have dipped into bear market territory about every 6 years, with median losses of 33%.1
But while market downturns may be unsettling, history shows stocks have recovered and delivered long-term gains.
2. Have an investment mix you can live with, through market ups and downs.
Your mix of stocks, bonds, and short-term investments will determine your potential returns, but also the likely swings in your portfolio. Pick an investment mix that aligns with your goals, timeframe, and financial situation, and you can stick with despite market volatility.
Then, check to see whether your asset mix may have veered off course during market moves. If so, consider rebalancing to your target mix. Like systematic investing, rebalancing can help an investor buy low—when investments are effectively on sale. Over time, that discipline can pay off.
3. Invest consistently, even in bad times.
Some of the best times to buy stocks have been when things seemed the worst. Instead of trying to jump in and out of the market, consider continuing to make consistent contributions to your UC 403(b), 457(b) and/or DC Plan. Consistent investing can give you the discipline to buy stocks when they are at their cheapest.
There could be an advantage with this approach: You could end up with a lower cost per share, on average, than if you had invested larger amounts less frequently. (See how to put the law of averages to work for your investments.)
Keep in mind systematic investing does not ensure a profit or guarantee against a loss in a declining market. But it could help you prepare for tomorrow while sleeping more soundly tonight.
4. Don't become obsessed with checking balances during times of volatility.
Doesn't it feel good when you check your account and see that it's up? Peeking into your account after a drop doesn't. Short circuit your impulse to flee stocks by not checking your investment as often during periods when the market falls.
Until you actually sell your investments, any gains or losses are just on paper. If you do sell, you’ve effectively locked in those losses. Selling investments may also cost money, in the form of trading commissions or redemption fees—but those costs are small potatoes compared with the opportunity cost of being out of the market. So, stick with your plan and stay invested. You'll probably be better off in the long run.
The bottom line
Markets will rise and markets will fall, and with the changes, opportunities will appear. To make the most of a bad market, consider taking advantage of lower-cost investments through a disciplined strategy. Once you're on the other side of the volatility, chances are you'll be really happy that you stuck with your plan.