STRS Ohio understands that market volatility is a cause of financial stress for individuals saving for a financially secure retirement. The information below, provided by Nationwide Retirement Solutions (NRS),* includes principles to help you weather market volatility as you manage your investment selections as an STRS Ohio Defined Contribution or Combined Plan participant or as an enrollee in a supplemental retirement plan.
When investing, you need to be aware of market risk, the potential for investments to lose value due to market fluctuation or volatility. Market risk is always there. You can’t avoid it.
History shows investment markets have grown over time despite short-term ups and downs. In fact, these fluctuations can actually create buying opportunities that may lead to greater earnings over time. Investing is all about striking a balance between market risk and return. Rather than trying to avoid market swings, understanding some key principles for long-term investing can help you navigate a sometimes volatile market.
When investing for your retirement, it’s important to have a plan, understand your investment style and contribute regularly. Keep in mind investing involves risk, including possible loss of principal.
Three Key Principles When Investing for the Long Term
- Have a plan.
It’s easier to take a long-term view if you understand where you want to go. When do you think you may want to retire? How much income will you need in retirement? Consider setting retirement goals and model different scenarios to see how you can achieve them.
- Know your investment style and determine the asset allocation that is right for you.
How comfortable are you with seeing your portfolio go up and down? Investing for retirement is all about finding an asset allocation (dividing your investments across different asset types) that takes into account both your risk tolerance (your comfort with investment risk) and timeline for when you expect to need your money. If you’re younger, a more aggressive investment mix may help you gain value over time even if you lose value in the short term. But as you get older, your savings have less time to recover. Using asset allocation as part of an overall investment strategy does not assure a profit or guarantee against loss in a declining market.
Another factor to consider when making investment choices is whether you prefer to be more hands on or hands off in your investment style.
- If you prefer to be more hands off, you may want to consider a Target Date Fund which will automatically adjust the investment mix based on your time to retirement.
- If you prefer to be hands on, it is advisable to determine your investment style (i.e., conservative, moderate, aggressive) and choose the asset allocation that is right for you.
- Contribute regularly and stay cool when markets become volatile.
It can be tempting to change your investment choices or contribution amount based on what you hear in the news, but making investment decisions based on hunches or trying to time the market often leads to dollar losses and missed opportunities. When you contribute regularly from your paycheck, you never “miss out” because you’re buying when the market is low, as well as when the market is climbing. This is called dollar cost averaging and it helps reduce the effects of market volatility over time although it does not assure a profit or guarantee against loss in a declining market.
*STRS Ohio contracts with NRS as administrative service provider for the defined contribution aspects of the STRS Ohio benefits for participants in STRS Ohio’s Defined Contribution and Combined Plans.