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Navigating Market Volatility in Retirement

By Michael Nedreski

Retirement is a highly anticipated milestone, but it comes with its own set of financial complexities. One of the most daunting is managing the unpredictability of market fluctuations.

Despite the ups and downs, a stable retirement is still within reach. By understanding the key drivers of market volatility and implementing a thoughtful investment strategy, you can stay on course toward a financially successful future.

In this article, I explore strategic, diversified approaches to help you navigate uncertainty and work toward safeguarding your retirement plans.

Understanding Market Volatility

Market volatility is the fluctuation in the price of a security or market index (1) over a given period. Simply put, it measures frequent and significant price changes in financial markets. 

Market volatility is an inherent characteristic of financial markets. A number of variables, including economic growth, inflation, interest rates, geopolitical events, and investor sentiment, have caused market cycles of ups and downs throughout history.

Although it can cause anxiety, volatility is not always negative. In fact, long-term investors may find opportunities in market fluctuations. Retirees can better handle these market fluctuations and work toward their financial objectives by comprehending the nature of volatility and putting into practice a clear investing strategy that fits their time horizon and risk tolerance.

Impact of Market Volatility on Retirement Portfolios

Market volatility can substantially affect retirement portfolios across diverse asset classes. 

For example, while stock investing involves risks, including fluctuating prices and loss of principal, they're inherently more volatile than bonds. That means stock prices can drop sharply during market downturns, which can deplete a retiree's assets considerably. (2)

And while bonds are considered more stable, they're not immune to volatility either, particularly when interest rates are rising. Bond prices and returns typically move in opposite directions, so when interest rates climb, existing bond prices usually decrease. 

For retirees, this "sequence of returns risk" is a major obstacle and highlights the negative effect of market downturns on retirement portfolios. If a retiree is compelled to take money out of their portfolio when it's significantly declined in value, they may be selling assets at a loss. 

Because repeated withdrawals must be drawn from an increasingly smaller principal, this could have a cascading effect that puts their long-term financial stability at risk.

Strategies for Managing Market Volatility in Retirement

Now let's look at some strategies for reducing risk to retirement portfolios during market volatility. (3)

First, we believe diversification is crucial. Diversification includes spreading investments over a variety of asset types, such as equities, bonds, real estate, and commodities—thereby reducing the impact of subpar performance in any one asset type. (4)

A fundamental element of diversification is asset allocation; in other words, setting up the ideal combination of stocks, bonds, and other assets according to a person's age, risk tolerance, and time horizon. (5)

An older retiree may prioritize income and stability and allocate a larger portion of their investments to bonds, whereas a younger retiree may be more risk tolerant and invest heavily in equities.

Another essential strategy is keeping a sufficient emergency fund. (6) During market downturns, this cash reserve acts as a buffer, allowing retirees to pay for living expenses without having to liquidate investments at potentially lower prices. 

To sustain the intended asset allocation over time, regular rebalancing by a finance professional is recommended. Rebalancing involves periodically buying or selling assets to restore the intended allocation, confirming that the portfolio remains aligned with the investor's risk tolerance and investment objectives. (7)

Maintaining a Long-Term Perspective

Retirement savings can be severely impacted by emotional decision-making, such as panic selling (8) during market downturns. This means it's critical to focus on long-term investment goals rather than responding to short-term market swings.

History has shown us that markets typically rebound from downturns. (9) The long-term trend has been upward, even though recoveries vary in timing and length. By remaining invested and refraining from impulsive decisions, retirees can gain from the potential of long-term prosperity and can weather market volatility.  

Speak With a Qualified Advisor

Are you looking for a resilient investment strategy that can weather market ups and downs in retirement?

Although no strategy assures success or protects against loss, at White Oak Wealth Partners, our experienced financial advisors provide proactive, adaptable guidance to help you navigate the challenges of market volatility. We continuously monitor and adjust investment strategies to align with changing market conditions and your unique financial situation.

No matter where you are on your retirement journey—already retired, nearing retirement, or still building your nest egg—you need a sound financial plan. 

Let's create a strategy designed for your long-term stability. To get started, contact us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or scheduling an appointment here.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) designation conferred by College for Financial Planning (188-LPL). Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.

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(1) Investopedia, 2023, July 23

(2) Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features, and credit risk (116-LPL). 

(3) Investopedia, 2024, October 24

(4) There is no guarantee that a diverse portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

(5) Asset allocation does not ensure a profit or protect against a loss. (34-LPL) 

(6) FCAA, 2023, June 19

(7) Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. (28-LPL)

(8) Investopedia, 2024, August 7

(9) Kiplinger, 2023, December 4