The Volatile Market Effect on Retirees

November 27, 2020

Since January 2018, if I look at the charts, I see a lot of volatility.  This is usually caused by an uncertain event or events.  COVID-19 and its effect on businesses, jobs, and the health of so many, has been that event in 2020.  However, even prior to that, there have been other periods of uncertainty, and some of the times they involved the Federal Reserve (The FED) and their decision on interest rates.

Despite an economy that was thriving in 2018, many investors still saw data and signals that The FED would take a "lower for longer" approach when it came rates.  However, The FED did the opposite and volatility was invited into the stock market and many retirement portfolios.  Almost as damaging to the market as the decision was some of the comments that The FED chairman Jerome Powell would make post decision to raise.  One quote that always stuck out to me was when Powell stated, "some volatility, doesn't probably leave a mark on the economy."  

A quote by someone with that much "power" to effect the markets and economy showed me a huge disconnect that some of the elite, such a Powell, are from my middle class clients - especially my retirees!  Retirees are most likely not adding new money to their accounts and able to take advantage of some of these "dips" of volatility, or do any sort of what we call "dollar-cost averaging".  Volatility may cause the retiree to skip repairs on a house, or possibly skip a vacation, or even have to lower their withdrawal rates to ensure they do not run out of money.  These are all things that would have a HUGE effect on our economic numbers. 

If you are putting in "new" money consistently, like your 401(k) and IRA contributions, then there is certainly the opportunity to take advantage of those "dips".  However, if you are retired, and living off your retirement savings, then it is a little more difficult to take find opportunity, and depending on your risk tolerance, you may not want to take the chance at looking for opportunity when the market is 10, 20, or 30 percent down.

As we leave 2020, and hopefully leave the COVID-19 economy behind sometime soon after, let's hope that a policy and decision that is made to create nothing but volatility, is left behind as well.