How much will market volatility really affect you?

By Brandon Trout

There’s no way to sugarcoat it: If you’re an investor, you haven’t liked what you’ve seen in the financial markets recently. The effects of the coronavirus triggered a market “correction” – a decline of 10 percent or more ­– and more volatility is almost certainly on the way. But instead of fretting over your investment statements, you could consider some more-positive approaches.

Ask yourself when do you need the money from your investment accounts, such as your IRA and your 401(k) or similar employer-sponsored plan? These are retirement accounts, so, depending on your age, you may not need to tap into them for 20, 30 or even 40 years.

If so, your losses may be “paper” ones only for now and aren’t subjecting you to imminent financial jeopardy.

This isn’t to minimize the downturn – it always takes time to recover lost ground, and there are no guarantees with investing. However, although past performance does not guarantee future results, it is useful to note that, over its long history, the U.S. stock market has typically trended in one direction – up – despite serious and sometimes lengthy declines such as we saw in the Great Depression and, to a lesser extent, the bursting of the “” bubble of the early 2000s and the financial crisis of 2008-09. Nonetheless, you may have shorter-term goals – a wedding, down payment on a home, overseas trip, etc. – for which you need to save. For these goals you wouldn’t want to touch your retirement account anyway, as you’d likely face taxes and penalties. Instead, you’ll want your money invested in liquid, low-risk accounts that will be minimally affected by declines in the financial markets. These vehicles might include Certificates of Deposit (CDs), money market accounts and U.S. Savings Bonds, all of which offer the protection of principal and can pay higher rates than traditional bank savings accounts.

But you might also have longer-term goals that can be addressed through investments that may be somewhat or largely free of the effects of market volatility. For example, to supplement your retirement income, you might consider a fixed annuity, which can provide you with a guaranteed interest rate and, depending on how it’s structured, an income stream you can’t outlive.

Also ask yourself: Just how much of my net worth is tied up in my portfolio? If you’re a homeowner, consider your house: Has it dropped in value during the market decline? Probably not. Do you still have just as much equity in it as you did a month ago? You might have even more. In other words, the value of your investments may have dropped, but the decline in your overall net worth may be smaller.

Here’s the bottom line: Large drops in the financial markets aren’t fun for investors – but that doesn’t mean the bottom has dropped out on your financial future. Keeping things in perspective is a good move in life’s endeavors – including investing.

Brandon Trout, a local Edward Jones advisor, writes a monthly online financial column for this newspaper.