When the going gets tough: remember the long-game

The recent stock market sell-off, including two days in a row of triple digit losses, reminds us once again what a wild ride investing can be. Like death and taxes, precipitous market drops also seem to be one of those unavoidable, inevitable realities of life. But what we have observed, at least historically, is that markets have a way of clawing their way back.

No matter how much we may try to remind ourselves of this in the moment, watching markets plunge can be painful, even for the most seasoned investors. But if your savings are in a retirement account—with years of work still ahead, nearing retirement or even presently retired—it’s important to keep the following three things in mind:

1. You are investing for the long-term

Don’t forget, retirement assets have a major advantage in the face of short term volatility—they are invested for decades. Seeing the value of your retirement assets fall may prompt you to take action, but selling may only lock in your losses—and attempting to time your way back into the market is never easy (all too often this can result in selling low and buying high). And investing only in conservative options (like cash or short-term bonds) can mean that your savings won’t have the opportunity to grow over longer time periods and you increase your exposure to inflation risk if your returns don’t keep up with prices.

2. At times like these, diversification can be your best friend

As Harry Markowitz once said, diversification “is the only free lunch in finance.” At no time does this hold truer than in periods of market stress. Having assets that “zig” when others “zag” can help increase portfolio stability may help you lose less in a sharp downturn. Now is a good time to take a look at your portfolio—if you have multiple investments going in the same direction at the same rate, it may be time to look at some diversifying investment options.

3. Target date funds can help you better manage your market risk

Target date funds adjust the amount of equity risk your assets are exposed to over time—offering more risk (and growth opportunity) when you are younger with a longer investment horizon, and less when you are older and approaching—or are already in—retirement. By adjusting the trade-offs between higher return potential and downside risk management, target date funds can help better position you for a smoother investment experience across the full market and life cycle.

Large market drops can rattle any investor, so it’s important to remember your long-term goals and stick with them—in up markets and in down. That’s why for many people, investing your retirement assets in a diversified, all-weather vehicle you can live with for the long haul can be the best strategy of all.    

Paul Mele is the Head of Participant Engagement for BlackRock’s U.S. & Canada Defined Contribution (USDC) Group and a regular contributor to The Blog

Investing involves risk, including loss of principal. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable. No representation is made that this information is accurate or complete. There is no guarantee that any forecasts made will come to pass. This material is provided for educational purposes only and is not intended to constitute “investment advice” or an investment recommendation within the meaning of federal, state, or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for any direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice. ©2018 BlackRock, Inc. All Rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. MKTG1018U-630781-1969514

source https://www.blackrockblog.com/2018/10/24/retirement-investment-recent-market-sell-off/