What Does Volatility Truly Mean?

Nowadays, the word “volatility” seems thrown around more than ever. Usually, when it comes to financial talk, volatility is used to describe a downward trend. But that’s not what volatility really means! Volatility technically refers to large up and down swings in the market over short periods of time. It doesn’t just mean a downward trend—it’s a quick swing between both upward and downward.

How to Beat Volatility: Make a Plan

It’s important to make sure your financial plan is prepared for downward trends. When markets are smoothly climbing, it can seem as if there is little danger involved in holding risky assets in your retirement portfolio.

But suppose you don’t stay vigilant about how risk is reflected in your investments. When the markets eventually take a downturn, especially if you’re drawing income in retirement, your accounts could be at greater risk of declining steeply in value.

That’s if a downturn happens…but what about true volatility? What about when markets jump one week and tumble the next? It can make you feel like one week you need to be more conservative and the next, more aggressive. If snappy headlines and emotions are getting the best of your peace of mind and you find yourself constantly second-guessing yourself, then I would suggest it is time to nail down a plan that you can live with.

Questions to Ask While Making a Retirement Plan

Riding the markets by the seat of your pants is not a portfolio strategy that will consistently provide what you need in retirement. Instead, it’s crucial to ask yourself the following questions, which are broken down by category, while developing your plan:

1. Retirement finances

   1. How much do you have saved?
   2. How much do you plan to have saved in retirement?

2. Costs

   1. How much do your basic needs cost?
   2. How much do you think they will cost in the future?

3. Income needed to cover your basic costs

   1. Based on your costs, how much will you need now and in the future, to comfortably cover them?

4. Risk tolerance

   1. How much will go toward providing you a stable income that covers your costs in retirement?
   2. Based on that number, how much are you willing to put toward riskier, higher-growth assets?
   3. If you’re not retired, how much more do you need to meet your retirement goals?

This set of questions only scratches the surface of how to thrive with volatility throughout retirement without worrying about everyday market swings. Health care costs, tax strategy, multiple sources of income, where you live, what assets you currently have and how liquid they are and many other factors, all influence how your ideal retirement plan will be sculpted. But that’s easier said than done. Talk to us today to take the first step in helping you get your retirement plan on track.

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The content presented is for informational purposes only and is not intended as offering financial, tax, or legal advice, and should not be considered a solicitation for the purchase or sale of any security. No representations or warranties as to the completeness or accuracy of any information presented is implied. Before making any decisions, you should consult a tax or legal professional to discuss your personal situation.