While volatility might not feel good, it’s important to remember that double-digit intra-year declines are typical. Historically, the average intra-year decline has been around 14%, yet annual returns were positive in 34 of the past 45 years. This demonstrates that despite short-term fluctuations, the market has a tendency to recover and grow over time.

The principle of time in the market

One of the key principles of successful investing is recognizing that it’s not about timing the market, but rather time in the market. Attempting to predict market movements and make short-term trades can be risky and often counterproductive. Market timing is extremely difficult, even for seasoned investors, because it requires more than just accurately predicting market peaks and knowing when to sell. A successful market timer must be correct twice: knowing when to sell and when to re-enter the market. The worst days in the market often occur very close to the best days—and missing out on those days’ gains can have grave consequences for their portfolio. In fact, if participants missed the 10 best days in the market over the past two decades, their portfolio would have been cut in half.

The chart below highlights the importance of staying invested and not reacting impulsively to market volatility.

Strategies for retirement planning

When in doubt, zoom out. Encouraging individuals to take a step back and look at the bigger picture can provide a valuable perspective. Are they appropriately positioned for where they are in life? This question is crucial for tailoring investment strategies to individual circumstances and goals.

For those closer to retirement, it’s essential to ensure appropriate diversification across a mix of stocks and bonds, as well as across U.S. and international markets. Additionally, having enough savings on hand to cover shorter-term expenses can provide peace of mind during turbulent times.

If participants are still years or decades away from retirement, continuing to fund their retirement plan can result in positive outcomes over the long term. Investing, as opposed to simply saving, can generate stronger outcomes over the course of decades. Target-date funds, which are designed for long-term investing across market cycles, can be a useful tool for a variety of retirement savers. Staying invested, especially if  long-term goals haven’t changed, can produce a better retirement outcome. 

In conclusion, while market volatility can be unsettling, helping participants maintain a long-term perspective and stay committed to their investment strategy can help them navigate the ups and downs. By focusing on time in the market rather than timing the market, and ensuring one's portfolio is aligned with their life stage and goals, can work toward achieving financial security and a successful retirement.

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