Editor's note: This story has been updated to reflect Thursday’s changes in the stock market.
Given Wall Street’s recent volatility, what’s an older investor to do? That depends upon your financial situation, your tolerance for big market swings and whether you are close to retiring or already retired, financial experts say.
The Dow Jones Industrial Average sank 1,033 points Thursday, closing at 23,860. This plunge follows a 1,175-point tumble Monday and a 666-point drop last Friday. The cumulative losses have pushed the Dow down by 10.4 percent since hitting a record 26,616 on Jan. 26. A 10 percent market drop is considered a correction.
Many older Americans with employer-sponsored 401(k) accounts and individual retirement accounts (IRAs) have experienced even bigger losses. But the consensus among investment advisers is: Don’t panic.
Whatever your financial situation or age, they suggest checking your retirement accounts to see how the market swings have affected your savings. Take a look at AARP’s net worth and retirement planning calculators to see if your retirement plans are on track. Schedule a talk with your financial adviser to determine if you should rebalance your portfolio. Experts also suggest making sure you accumulate an emergency fund to cover up to 12 months of living expenses. And consider how much risk you are willing to bear if you’re nearing retirement or already retired.
“We still look at the overall market from a glass half-full perspective, with economic growth strong enough to warrant higher stock prices,’,” says Terry Sandven, chief equity strategist for U.S. Bank Wealth Management. “But regardless of your stage in life, the market’s recent volatility is a reality check. It offers investors an opportunity to look at their goals, market risks and to rebalance portfolios to make sure everything is properly aligned.’’
For those in their 50s who have a long-term investment horizon, stocks and mutual funds still provide the greatest potential for return on investment, experts say. As part of an overall investment portfolio, financial advisers say stocks also make sense for investors who are near retirement or retired. Historically, more conservative investments, such as bonds and certificates of deposit, have lower rates of return. Stocks and mutual funds provide retirees diversification, dividends and a greater potential to increase savings.
“We always stress diversification, but it’s OK for people in their 60s to 70s to own stocks,” says Andrew Adams, market strategist for Raymond James Financial.
February’s staggering point losses should be kept in perspective, market sages say. Stocks have been on a mostly upward trajectory since March 2009, making this the second-longest bull market on record. A broader measure of blue-chip stocks, the Standard & Poor’s 500, is up more than 280 percent over that time. Besides the Dow, broader market indexes soared to all-time highs in January after posting larger-than-normal gains in 2017.
In addition, economic growth remains robust, corporate earnings are expected to rise, and unemployment is expected to continue hovering at 18-year lows — all positives for a healthy market.
“We firmly believe this is a normal market correction in what we think is a long-term bull market,’’ says Adams.
Jill Schlesinger, a CBS News business analyst and retired financial planner, reminds investors that they’ve probably lived through and weathered this kind of market volatility before. “They know they can ride these swings out and that the market will eventually come back,’’ she says.