3 ways to take control when things feel out of control
There’s no question that unprecedented levels of change and uncertainty, like those we’re experiencing today, can take a toll on your physical, emotional and financial wellbeing. That makes it more important than ever to focus on the things you can control from following social distancing guidelines, to finding new ways to remain connected with family and friends. It also requires understanding which steps you can take now to help protect your finances and your future goals.
Don’t try to time the markets
Despite increased volatility, investors should avoid trying to time the market, and instead stay focused on their 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. 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.
Remember, even in years when the market is up for the year, it can experience significant drops. In fact, since 1980, the average intrayear drop in stocks is 14%.1
Keep in mind that when share prices decline, you still own the same number of shares of units. 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 now.
Take 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.
Maintain your balance
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.
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.
Take control: Rebalancing can help keep you on track toward your goals, while helping to smooth out the markets’ ups and downs over time.
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
Take 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
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. To learn more, contact your TIAA advisor to schedule time to talk about your needs.
1SPTR Index, 12/31/18. 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.
2Rebalancing does not protect against loss or guarantee that an investor’s goals will be met.
3Guarantees are based on the claims paying ability of the issuer.
This material is for informational or educational purposes only and does not constitute investment advice under any securities laws. 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.
Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.