It’s not just your imagination, the stock market has been more volatile this year.
The Dow Jones Industrial Average is still down by more than 2,000 points from its record high in late January. The VIX Index, commonly referred to as Wall Street’s fear gauge, has stayed above 10 for most of 2018 after trading below that level for much of 2017.
If you’re retired or nearing retirement, you might be wondering if it’s time to pull money out of the market to minimize risk.
Financial planners agree though that selling your holdings out of fear is one of the worst things an investor can do for their financial future. Here’s why.
Stocks Tend to Make Gains When Bonds Drop
Conventional wisdom states that investors should reallocate their portfolios in favor of more stable investments such as bonds and a money market account as they age. But exiting the stock market completely can actually increase your risk, according to certified financial planner John Ulin, founder and Managing Principal of Ulin & Co. Wealth Management.
“Volatility has returned with a vengeance,” Ulin says. “To make matters worse, retirees that are depending on stability and income from bonds have seen the ‘safe’ side of their portfolio also fall into the red this year due to rising rates.”
Owning both stocks and bonds will ensure that at least part of your portfolio is growing at all times, helping to make up losses in other areas. Retirees should consider the increased volatility this year an “emergency drill” to make sure their portfolio allocations are wise, Ulin says.
Stocks Beat Inflation, Unlike Bonds
One of the greatest advantages of stocks for those with 30 years of retirement ahead of them is that the value of stocks tends to grow with the rate of inflation.