Lately, despite evidence of improving economic conditions, the stock market has taken us all on a wild ride. It’s important to remember that the stock market does not always react, with perfect correlation, to the state of the economy in general. Market corrections are normal. But it can feel alarming when you’ve invested any of your retirement funds in stocks.
First of all, keep in mind that your portfolio should always be balanced according to your risk tolerance, and this tolerance will change over time. For example, a 30-year-old facing at least two decades of work (and earnings) before retirement might feel that he can afford to take more risks. He has time to make up for any losses, after all. But a 55-year-old getting ready to retire in the next few years probably doesn’t feel like taking big risks with his retirement savings. That’s okay; in fact, it’s expected that you might become more conservative as your target retirement date draws near.
So, the first thing to remember is to make your TSP fund selections with your risk tolerance in mind.
Second, it’s important to avoid emotional investing decisions. Once you’ve decided upon your risk tolerance and made choices according to those values, you generally don’t need to panic and re-balance everything any time the stock market fluctuates. Decisions we make under duress rarely work out beneficially in the long run. If you’ve made your decisions after careful scrutiny, then relax and trust time to do its job.
Warren Buffet famously said that we should turn off the news, stop obsessively reading the paper, relax, and go enjoy an ice cream cone. Obviously this is easier said than done (especially when you’re a multi-billionaire), but the point is that worrying won’t change anything.
Every situation is different, and we do not mean for you to take this blog as investment advice that is “right” for everyone! It’s simply a reminder that, once you’ve sought experienced guidance and made decisions about retirement planning, each little market swing does not necessarily spell disaster. Keep earning your years of service and saving faithfully, and remember to meet with us regularly to re-evaluate your strategy and make any necessary changes to your long-term retirement plan.
