Have you had your retirement date circled on the calendar and been eagerly anticipating the start of your new lifestyle? Or, maybe you decided to retire in the last year and are just getting used to your new way of living.  If you see yourself in either of these scenarios, you may be feeling a bit nervous now that inflation and ongoing market volatility has crept into your daily life. 

Rest assured, you are not alone. Many investors are dealing with these same feelings of uneasiness and worry about the long-term impact on their retirement funds.

While you may feel you have to do something to address this immediately, the fact is, if you have a solid financial plan, it is likely already built to withstand times like these. 

The key to managing through this or any rough period in the economy, is to remain calm and work with your Financial Advisor to review your plan and make small tweaks, if necessary. 

When market volatility strikes, it’s important not to over-react. Instead of selling positions during a market downturn, look closely at your holdings to make sure they are properly diversified across asset classes. At any stage of your investment life, particularly as you get close to or enter retirement, being overly concentrated in one stock or sector could leave you vulnerable if the volatility continues.

Rich Guerrini, President & CEO of PNC Investments

Time in the Market, Not Timing the Market

While the knee-jerk reaction to a down market may be to pull out of the market, doing so can lead to greater losses over time. Not only do you lock in the initial loss from the market dropping, but you ultimately lose out on the days of positive returns as well. Therefore, time in the market, is a much better investment strategy than trying to time the market.

The following table illustrates how missing the best* days in the market over the past 20 years impacts the average annual return of an initial $10,000 investment.

Table 1: 20-Year Daily Returns Ending 6/30/2023

Period of Investment Average Annual Return Value of Initial Investment of $10,000
Fully Invested 7.5% $42,168
Miss the 10 Best Days 3.4% $19,339
Miss the 20 Best Days 0.8% $11,609
Miss the 30 Best Days -1.4% $7,628
Miss the 40 Best Days -3.2% $5,251

*Best is defined as the highest one-day return of the S&P 500 Index. Source: PNC Investment Strategy.

While past performance is no guarantee of future results, you can see from the chart above that those investors who simply stayed the course and adhered to their long-term investment plans, through good times and bad, fared significantly better than those who did not.

So, what should you DO?

Keep Inflation and Market Volatility In Check with Diversification

The best response to market volatility and inflation is to take a breath and do an honest assessment of your individual situation. Work with your financial advisor to pressure-test your current plan and see how it holds up under various scenarios. Today’s financial planning software will allow you and your advisor to test different rates of inflation and market performance to help determine how your portfolio may react. Then, if you want to make some tweaks to some of the holdings within your portfolio, you can do so based on solid information and not emotion.

While the typical advice to lower your risk as you near retirement remains generally sound, now may also be a good time to reevaluate your risk tolerance to see if you might feel comfortable being a bit more aggressive in some of your holdings to help offset the impact of inflation on your expected returns.

Things to Consider If You Haven’t Yet Retired

If you haven’t pulled the lever on your retirement plans just yet, and you find that current market conditions and inflationary pressures could leave you with a gap in your retirement income plan, the simplest solution may be to delay your plans and continue working for a bit longer.  Not only will this give your portfolio more time to recover and grow but will also add to your social security earnings as well. Working just one or two more years, if you’re able, could have a significant impact.

Whether or not you can extend your working years, you most likely should not make major changes to your portfolio, especially if you’ve been following and regularly updating your financial plan. Rather, spend some time with your Financial Advisor ensuring that your portfolio is well-diversified and contains a variety of holdings, including some with guaranteed income, some with fixed income, some cash and some that provide inflation protection.

Things to Consider if You Are Retired

Chances are, if you’ve started enjoying retirement, going back to work is not the first option you would choose to help offset the effects of inflation and volatility on your portfolio.  That said, if in reviewing your current plan, you find that it will not sustain your current level of spending into the future and if working even part-time is not an option, then managing expenses rather than selling stock or pulling out of the market is likely the better choice to withstand current inflationary pressure while still allowing your portfolio to sustain you into the future.

In either case, whether you are nearing retirement or are newly retired, the higher interest rate environment we have been moving into, could also help provide the opportunity to add higher income-producing investments to your portfolio. 

The Value of Working with a Financial Advisor

While all investors should take inventory of their portfolios at least annually, this is especially important when the markets are volatile. Your Financial Advisor can review your current holdings to assess vulnerabilities and opportunities and help determine what strategies or solutions are appropriate for you. This becomes even more important the closer you get to retirement.

While a financial advisor can’t predict how the market will behave, they can help you diversify your portfolio and mitigate some of your exposure to risk, thereby helping you to stick to your investment strategy and position yourself to capitalize on subsequent market gains.

Rich Guerrini, President & CEO of PNC Investments

Here are some tips to help you protect your retirement assets and reduce risk when markets are volatile:

  • Work with your Financial Advisor to proactively plan for market volatility as well as inflation, ensuring your portfolio contains a variety of asset classes that will help offset these types of economic factors over the long term.
  • Stick to your plan, making small adjustments once or twice a year as needed, and don’t make reactionary decisions based on news of the moment.
  • Create your future stream of income by including a variety of investments in your portfolio, ensuring some provide guaranteed income, some fixed income and some provide downside protection.

Protect the well-being of your portfolio

Whether you are getting ready to retire or are already retired, there are proactive steps you can take to help protect your retirement assets without running the risk of missing out on any gains when the market recovers. For more information, or to discuss your personal situation in more detail, stop by your local branch or call 855-PNC-INVEST to speak with a PNCI Financial Advisor today.