Understanding market volatility

Before, during and after retirement

The stock market is in near constant flux. It moves up and down throughout each trading day, responding to supply and demand, corporate performance, world security, policy changes and more. The term we use to describe that movement is market volatility.

Many of us worry about our retirement savings during highly volatile markets. Fear of losing our savings is a real concern, but it’s important to know how to correctly evaluate your risk. Experts recommend spreading out your investments across different asset classes, so a downturn in one area doesn’t hit your whole portfolio.

Trying to “time the market,” meaning taking your money out to avoid losses and then jumping back in before the next rise, is often risky and can result in lower overall portfolio growth.

Stock market drops are inevitable, as are periods of growth. You may manage those risks and opportunities differently early in your career than you do as you near retirement. Riskier investment portfolios may be a good idea early in your career, but many people move away from them as they near retirement. Understanding your risk tolerance is key.

One thing that can be helpful to think about is when you will need the money, and how much will you need at that time. It may be helpful to have some portion in a less risky asset class because you will need it in the next five years, while keeping the rest of the funds invested more broadly.

Keep in mind that all members of the state’s retirement systems have a defined benefit in their retirement plan. For Plan 1 and Plan 2 members, that means your retirement amount is based on your earnings and length of service, regardless of market performance.

Plan 3 members have a combination of defined benefit and investment earnings. Those investment funds, along with DCP funds, are selected by the Washington State Investment Board (WSIB).

Many investments are target date funds, already diversified based on your projected retirement rate. If you’d like to be in a less risky fund you could move to a target date year that is sooner. For example, if you are planning on retiring around 2036, the 2035 target date may be most appropriate for you. However, if you are looking for something less risky, maybe the 2030, 2025 or 2020 fund would be better.

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