How You Can Weather Inflation and Market Volatility

Inflation remains at a 40-year high, and that’s contributed to the increase in stock market volatility this year.

The S&P 500 index, a broad measure of U.S. stock performance, reached a high in early January, only to officially enter a market correction in February – a drop of 10% off that record. While U.S. Federal Reserve policymakers recently raised a key interest rate to try to lower inflation, they also signaled more rate hikes will be needed to get the job done. So, inflation may continue in the economy and may continue to cause market volatility.

You might be wondering if now is a good time to sit on the sidelines until inflation cools and the stock market calms. Market timing rarely works. It’s time in the stock market not timing of the stock market that’s traditionally successful over time. In addition, stocks have been one of the best long-term hedges against inflation and investing in them as part of a diversified portfolio can protect your purchasing power. (See 3 Ways to Address Inflation in Your Portfolio.)

So, what can an investor do? Tune in to these three strategies:

  1. Understand that market corrections and volatility are just part of investing. You can’t predict their timing, though. That’s why you need to stick to your long-term investment strategy even during periods of wild market swings.
  1. Make sure your asset allocation – the mix of stocks, bonds, and cash – in your portfolio suits your time frame and tolerance for risk. Target-date funds can help here.* You essentially choose a fund based on the date you expect to start withdrawals, such as at retirement. The fund’s managers do the rest – from picking a diversified portfolio of securities to gradually adjusting the holdings to be more conservative as you approach your target date. Even in retirement, you’ll need a portion of your portfolio in stocks to keep up with inflation.

Note that target-date funds may not be available in all plans. Log in to your account to view the funds available to you.

  1. If you’re in early to mid-career and likely won’t need to tap your retirement portfolio for 10 years or so, don’t panic over market ups and downs today. Ignore the current market noise and focus on your long-term goals. Look at market history to understand that fluctuations come and go. Remember “Black Monday” in 1987 or “Dot-Com Bubble” in 2002? They were a big deal when they happened, but today they are just bumps in the stock market. And if you’re still anxious about the markets, talk to a financial advisor who can help fine-tune your strategy and provide some historical perspective.

* The target-date funds are not a complete solution for all your retirement savings needs. An investment in a target-date fund includes the risk of loss, including near, at, or after the target date of the applicable target-date fund. There also is no guarantee that a target-date fund will provide adequate income at and through an investor's retirement. Selecting a target-date fund does not guarantee that you will have adequate savings for retirement.

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Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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