Saving for retirement is a marathon, not a sprint. That’s why workers who map out a strategy early in their careers and consistently invest to reach their long-term goals have a greater chance of being prepared for a comfortable retirement.
Wise investors understand that overreacting to short-term market fluctuations with impulsive decisions can deliver disastrous results.
In today’s media-saturated world, it’s nearly impossible to avoid hearing negative market news. Here are four things to keep in mind to help you react wisely when you do hear it.
Create a diversified asset allocation that is appropriate for you based on your investment objectives, ability and willingness to take on risk and your investment time horizon. Diversifying your investments across multiple asset classes is important because each class reacts differently to market conditions. If you’ve allocated too much of your account to one asset class, it could be exposed to greater risk in certain market situations.
Without a carefully prepared allocation strategy, retirement planning can quickly become a series of guesses. And that’s a game you can’t afford to lose. So, to stay prepared, you’ll need to think through important factors such as your retirement income goals, risk tolerance and time horizon when determining your allocation. For example, if you’re a younger investor with aggressive retirement income goals, you likely have a higher tolerance for risk and can afford to assemble a more aggressive portfolio. However, as your situation changes (goals, risk tolerance, time horizon, etc.), your allocation will likely need to change as well, which is what makes a regular review so valuable.
GuideStone offers three easy-to-understand investment approaches that can help participants prepare an allocation that meets their needs.
Yes, there can be volatility over short periods of time. That’s why it’s important to stay focused on the long term. While past performance is not a guarantee of future performance, the stock market itself has been resilient through the years. When viewed over long time periods, the market has been friendly to investors, yielding far more positive returns than negative ones.
Start making contributions to your retirement plan as early in your career as possible. A worker who starts saving in their 20s will likely benefit more from the combination of time and compound interest than those who wait to start saving until they are in their 40s. If you can’t save as much as you need to right now, make plans to increase your contribution amount each year until you’ve reached your investment goal.
Making a contribution increase can often have a smaller effect on your take-home pay than you may think. Use this calculator to see how much a contribution increase will affect your paycheck. And make sure you determine this year’s increase today. The consequences of not preparing adequately with proper contribution habits can be dire to say the least. If you’re a participant, you can increase your contributions easily by contacting your HR department.
A down market is generally a good time to buy. This is the time when your routine contributions will acquire more shares at lower prices. If the share price recovers or increases, you could benefit over the long term. If you view a down market from this standpoint, it can help you stay focused on your long-term goals and prevent impulsive and emotional responses.
Financial markets tend to fluctuate weekly in response to social, political and economic events. And daily it seems that TVs, radios and websites are filled with advice on what everyone needs to do with their retirement accounts. They promise to help you know how to get rich during market downturns, or they promise unrealistic returns, or they promise to make all your financial dreams a reality.
But when you cut through the empty promises, the bottom line remains the same: Through the stock market’s downturns and upturns, history has always rewarded the long-term investment approach. The best defense against these ups and downs is to establish an investment plan and stay the course with your strategic, diversified, long-term asset allocation.
You can trust that GuideStone® is here to help you every step of the way. We have an unparalleled commitment to your financial security, and we stand ready to serve your retirement needs.
If you have further questions, contact us at 1-888-98-GUIDE (1-888-984-8433) between 7 a.m. and 6 p.m. CT Monday–Friday. GuideStone also offers point-in-time advice if you would like to speak with an advisor. Contact us at GuideStoneAdvisors@GuideStone.org to set up an appointment.
Advisory services offered through GuideStone Advisors®, an SEC Registered Investment Adviser. GuideStone Advisors is a controlled affiliate of GuideStone Financial Resources®. For more information about the firm, products and services, please review the GuideStone Affiliate Form CRS.
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