To say that this year has started with an economic climate that many folks are not familiar with, well, that would be an understatement. The news headlines have been filled with attention-grabbing topics that raise more economic questions than answers. After a year marked by geopolitical realignments, wars, and uncertainty around inflation, interest rates, immigration and trade, the retirement landscape can feel daunting. With so much uncertainty today, even an experienced investor can feel anxious in times like this and wonder if they should change their retirement planning approach. Folks, I get it.
I’ve had numerous conversations like this in recent weeks, both from those approaching retirement and those who have already retired, demonstrating that no one is immune to the overall economy’s influence on our personal finances. Many folks are asking what they need to do differently when faced with so many unknown factors, and they want reassurance that they will be OK. They need to know that their years of working, saving and sacrificing for retirement won’t be derailed by today’s chaotic political and economic landscape. And so, with our time here this week, I’d like to share some of the advice and tips I have shared in these discussions to help you navigate your own financial uncertainties too.
I help to teach folks that one way to help alleviate financial anxiety is to step away from the news headlines. What we see in the news are day-to-day events and their immediate effects on the markets. We need to remember that we are investors and not day traders and that there will be ups and downs along the way. Reacting to the news with knee-jerk changes to your retirement system based on fear is never a good idea. Your financial strategy should be built around your unique goals and objectives, with guardrails in place to help you avoid hasty, news-driven headlines.
It’s critical to also understand that uncertainty is an inherent part of investing. Growing your money in the markets will always involve a level of market risk that is based on things that are outside of our control. We need to accept that we can’t predict or control the whims of the markets. However, we are not completely powerless. Just because we can’t predict the markets doesn’t mean that we can’t aim to anticipate potential market movements and take steps to mitigate their effects.
To paraphrase Warren Buffet, the single most powerful way to compound your returns is to avoid large losses. This is where a downside risk mitigation system is so critical. Employing strategies like this involves ensuring the appropriate portion of your portfolio is protected from market volatility and losses. When your plan includes assets that you may rely upon to avoid losses regardless of market conditions, you create greater confidence to help weather volatile markets without needing to react to short-term market swings. Because you have funds earmarked for your basic needs and expenses, you can avoid selling market-sensitive investments when they are down and allow them the opportunity to gain strength during market recoveries.
Another key component to navigating volatile markets includes the use of strategic and tactical asset management strategies. Employing these investing strategies built from a bedrock foundation of quantitative data can help ensure your portfolio is not over-exposed to market volatility and risk. This approach seeks to prevent large losses from decimating your retirement system, balancing the pursuit of healthy returns while protecting assets from large losses. Your investment performance during market downturns can be just as important — if not more — than its performance during bull markets. The last thing any retiree wants is to watch the market drop 20-30% and be left in a place where they must delay retirement or reduce their income if they’re already in it.
Looking ahead, with expected rising volatility in 2025, there are only two things you can control, risk and process. It’s important to understand what your risk budget is and what is your overall process especially in challenging times. Is it to just hold on and hope for the best . . . hope is not a strategy. Is it to just put it into CD’s . . . that won’t work since we won’t stay ahead of inflation. Is it to employ a downside risk mitigation system to help facilitate a peace of mind you may enjoy? If not, shouldn’t you? If you already have . . . good for you. You see, your retirement plan should be designed to provide you with confidence, not stress!
So as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA.
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