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President Trump recently marked 100 days in office, and after weeks of stock market turbulence, many older adults are feeling unsure about what the next four years might spell for their retirement.
To be clear, we’re in uncharted territory in many ways right now. Nobody knows where the market or economy might stand in a few months or years. That said, there are still some reassuring lessons for retirees worried about their financial futures.
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1. You won’t lose any money unless you withdraw from the market
The S&P 500 index (SNPINDEX: ^GSPC) fell by close to 20% between mid-February and mid-April, leaving many retirees reeling as their 401(k)s and IRAs plunged. But if there’s one thing to remember about the stock market, it’s that you don’t technically lose any money until you sell your investments.
Your retirement account may lose value when the stock market drops, but those losses are only temporary until the market recovers. Once stock prices bounce back, your portfolio should recover its value without you losing anything.
Selling your investments for less than you paid for them, however, will result in losses. One of the riskiest moves you can make, then, is to pull your money out of the market after stock prices have dropped.
If you’re already retired, you may not be able to avoid pulling from your retirement account. But if at all possible, it’s wise to keep your distributions to a minimum. The more money you leave in your account, the less you’ll lose by withdrawing during a market slump.
2. The stock market has survived challenging times in the past
Again, nobody can say what will happen in the coming months or years, and past market performance doesn’t predict future returns. That said, this is not the first time the market has experienced unprecedented times.
In the last couple of decades alone, we’ve seen a global pandemic, severe social and political unrest, the collapse of the tech sector in the early 2000s, and the financial crisis and Great Recession in 2008 — which led many investors to question the future of Wall Street altogether.
However, the market has managed to not only recover from every one of these unprecedented periods, but thrive. Since January 2000, the S&P 500 has earned total returns of 287%.
The coming months could be tough, but this isn’t the first time the market has faced hard times. There’s never been any period too difficult for the market to survive, and chances are very strong it will pull through this time, too.
3. A long-term outlook can help with uncertainty
In periods of uncertainty, one of the best things you can do is remember that even the hardest times are only temporary.
The average S&P 500 bear market since 1929 has lasted around 286 days — or around nine months. Even the longest bear markets in history — like the slump in the early 2000s and the 1973 oil crisis recession — lasted only around two years.
This is not meant to minimize tough times, as recessions and bear markets are difficult to stomach. But it can also be helpful to remember that the good times, historically, have far outlasted the bad. No matter what may be on the horizon, keeping a long-term outlook can make it a little easier to stay optimistic.
If you’re feeling nervous about how the next four years might affect your retirement, you’re not alone. But volatility is nothing new for the stock market. By avoiding withdrawing during downturns and staying focused on the future, you can minimize risk and protect your retirement as much as possible.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
