3 ways to maintain control in any market environment

While most long-term investors are not focused on the day-to-day fluctuations of the financial markets, a steep drop over a short period of time, like we saw in March 2020, is sure to grab our attention. Unanticipated events, whether related to the markets and economy, or changes in our personal lives, can take a toll on your physical, emotional and financial wellbeing. When that happens, it's important to get back to center. But what if there was a way to maintain your "financial center" and the confidence that you are on track toward your goals—regardless of what's taking place around you? That begins by embracing the three principals outlined below, which can help protect your finances and your future goals in any market or economic environment.

1. Don't try to time the markets

There's no question that periods of increased volatility in the financial markets can be disconcerting. However, you want to avoid trying to time the market in any investment climate, and instead stay focused on your long-term investment goals.

Market timing is when you move your money in and out of investments to try and capture the performance highs and avoid the lows. However, even the most experienced investors get tripped up by market timing.

That's because you have to make at least two decisions when you time the market. When to get out and when to get back in—and both are very difficult to get right. If, for example, you sell stocks when they're down, you may lose out on gains if prices go up again. As you can see from the chart below when attempting to time the market, missing just a few of the best rebound days could result in a significant long-term loss to your portfolio. It's important to think carefully about your exit and re-entry plans and determine if you are acting in a strategic or emotional capacity. Historically, the stock market has generally recovered from slumps, over the long term, although past performance is no guarantee of future results.

As you can see from the chart below, when attempting to time the market, missing just a few of the best rebound days could result in losses  in portfolio value. That's why it's important to think carefully about your exit and re-entry plans and determine if you are acting in a strategic or emotional capacity.

The cost of market timing

Remember, even in years when the market is up for the year, it can still experience significant drops throughout the year. We saw this in 2020 when, despite falling 34% early in the year, the S&P 500 posted a 16% gain for year.1

Also keep in mind that when share prices decline, you still own the same number of shares. It's not until you sell investments that you lock in losses. A strategy that seeks to sell shares when prices are declining and then buy back into the markets when prices begin to rise again typically results in owning fewer shares at higher prices. Since markets have generally proved resilient over longer periods of time, allowing money you do not intend to use for 3 to 5 years or longer to remain invested may put your portfolio in a better position to benefit as the markets begin to recover, versus cementing losses during periods of increased volatility.

Maintain confidence and control: Focus on diversification, staying invested and adhering to a plan that is tailored to your individual long-term goals, investment objectives and risk tolerance. While not a guarantee, generally, a mix of asset classes that may include stocks and bonds historically offers growth and a degree of stability over the long term.

2. Rebalance regularly

As the chart below shows, over time, market swings can throw your asset allocation—and potentially your risk targets and investment goals—out of balance. When this happens, you can rebalance by moving money from investments that take up a greater portion of your portfolio than desired into those that could use a boost—to get back to the initial (or target) asset allocation.2

Also revisit your asset allocation whenever you experience life changes, such as a job change, marriage or divorce, or the arrival of a new baby or grandchild. Based on these changes, you might decide to take either less or more risk with your investments.

Rebalance alteast annually

Depending on the number of investments you have and the size of your portfolio, rebalancing can be challenging. Your TIAA advisor can help you determine if and when your portfolio needs shoring up, so it remains aligned with your risk tolerance and long-term objectives.

Maintain confidence and control: Rebalancing can help keep you on track toward your goals, while helping to smooth out the markets' ups and downs over time.

3. Establish a retirement income floor

The foundation of retirement planning is to ensure you have sufficient income in retirement to meet your basic living expenses—so that each month, regardless of whether the markets go up or down, you have enough to take care of the essentials: food, shelter, clothing and health care. That makes it easier to avoid making emotional decisions during periods of increased market volatility.

Social Security can provide some of the foundation for your income floor. However, for most people, it's not enough to cover all of your expenses. If you have a defined benefit pension through your employer, you can include that income, as well. But what if those sources fall short—and don't cover 100% of your needs?

Whether you're in or nearing retirement, knowing how you will cover your essential expenses begins with calculating how much you will receive from Social Security and other sources of lifetime income. If there's a gap, you may want to consider annuitizing a portion of your savings. Other than Social Security and pensions, annuities are the only retirement option capable of providing income that's guaranteed for as long as you live.3

Maintain confidence and control: Lifetime income from annuities creates income that you can't outlive to help you cover everyday expenses. If you're concerned about market risk, fixed annuities offer steady, reliable income regardless of market performance.3

Retirement income sources

Avoiding market timing, rebalancing your asset allocation and establishing a retirement income floor are just three of the many steps you can take now to remain on course toward your important financial and life goals, regardless of the direction of the markets at any given time. To learn more, contact your TIAA advisor to schedule time to talk about your needs.

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1 S&P Price Return Index (SPPR) 12/31/2020. Calendar-year returns are price returns, meaning they do not include the reinvestment of dividends. The S&P 500 is unmanaged and cannot be purchased directly by investors. Past performance does not guarantee future results.

2 Rebalancing does not protect against loss or guarantee that an investor's goals will be met.

3 Guarantees are based on the claims paying ability of the issuer.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

The views expressed in this material may change in response to changing economic and market conditions. Past performance is not indicative of future returns.

No strategy can eliminate or anticipate all market risks, and losses can occur.

Investment products may be subject to market and other risk factors. See the applicable product literature or visit TIAA.org for details.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.