From President Trump’s overhaul of the Federal government to tariffs and inflation, there is a lot to keep retirees up at night.
Stocks are experiencing downswings, inflation is creeping up again, and world alliances are undergoing radical changes. In tumultuous times, retirement savers are left wondering if staying the course is enough.
“There’s always been uncertainty in the markets and while the levels of uncertainty and sources may change throughout time, there will always be uncertainty,” says Michael Schuette, multi-asset portfolio strategist at RBC Wealth Management, who calls for a calm and rational approach.
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“What’s really important is to plan for those things in our control like determining your savings amount, spending amount and withdrawal rates.”
Uncertainty is everywhere
Whether it’s Trump’s tariffs, the rising price of eggs or turmoil in the Middle East and Ukraine, uncertainty is a common theme these days. It is something the markets don’t like, which is why stocks have had big swings down in the month since Trump took office. Undoubtedly that stirs up anxiety, but it’s not something retirement savers have to react to.
“Investors should hold off on making large changes because of a Tweet or some new tariff,” says David Blanchett, managing director, portfolio manager and head of retirement research for PGIM DC Solutions, the retirement advisory firm. “Markets go up and markets go down. For most folks retirement lasts a few decades and in the grand scheme of things all of this is benign.”
History tends to prove that out. Investors who held onto their positions during the Great Recession recouped their losses and then some. During the stock market crash in the early days of the pandemic, people watched their savings evaporate, but later, those who stayed invested more than recovered. Those two crashes seemed like the end of the world at the time, but those who didn’t react protected and grew their retirement nest eggs.
Plus, corrections in the stock market are bound to happen and aren’t always a disaster. “The top ten days in the market occur around periods of big drawdowns in the marketplace,” says RBC’s Schuette.
The market may be due for a correction, notes Schuette. There hasn’t been one since 2023.
Diversification is uncertainty’s kryptonite
Having a well-diversified portfolio spread across different asset classes including stocks, bonds, ETFs, mutual funds, alternative assets and cash is the best way to weather any uncertainty in the market.
Diversification gives you a cushion and a place to hide when one area of the market is underperforming. It also gives you cover to avoid reacting when things are going south.
“It may be boring but one of the best protectors in an uncertain world is diversification,” says Rob Conzo, CEO and managing director of The Wealth Alliance. “Trying to pick the next hot thing is very difficult to do.”
If your portfolio checks off the diversification boxes, Conzo says it’s okay to create a little flexibility within that portfolio to tweak and change focus to capitalize on any strengths.
Let’s say you see an opportunity to invest in oil stocks because the President is focused on drilling in the U.S. With a little flexibility, you can direct investment dollars that way without throwing your retirement plan off course, says Conzo.
If your portfolio is light on bonds, and with the prospects of the Federal Reserve cutting interest rates looking dimmer, you may want to increase your exposure in that area.
This is not to say you’re moving all your investment dollars into one area. The idea is to have a diversified portfolio with a little room to play with.
“You can’t do that if you have all your money locked up for ten years and it’s illiquid. There are places you can focus, but don’t forget, the fundamentals are essential, ” says Conzo.
Seek help in tumultuous times
If you have a financial adviser and are still worried, a check-in may be in order. Your financial adviser can review your plan to ensure your risk tolerance is still reflected in your investments, your asset allocation hasn’t gotten out of whack and your savings rate doesn’t need any fine-tuning.
If your entire nest egg is in your 401(k) or you don’t have a financial adviser, don’t focus on the short-term, remember the end game.
“Being overly tactical does more harm than good,” says Blanchett of PGIM DC Solutions. He says 401(k) investors who want diversification but don’t know where to begin may want to consider a target-date fund.
A target-date fund is a type of mutual fund that automatically adjusts the asset allocation over time. As you get closer to a specific date, typically retirement, the asset allocation becomes more conservative. It’s a set-it-and-forget-it type of investment that provides savers with diversification across several asset classes.
“A target date fund is a simple way to get a diversified portfolio,” says Blanchett. “You not only own one fund, it’s a fund of funds. It’s just as diverse as holding twenty or thirty different mutual funds.”
Sleep better
Uncertainty doesn’t have to be your enemy. If you create a well thought out financial plan that is diversified and matches your risk tolerance you won’t have to worry if the President threatens more tariffs or if inflation continues to rise.
You can get a goodnight’s sleep knowing you’re protected.