Market volatility doesn’t have to mean portfolio volatility

Even those of us who don’t watch financial news know the basics: Stocks and bonds are down, inflation and interest rates are up, and lots of people seem concerned about a recession. Whether you’re planning your retirement or already enjoying it, today’s market volatility might change your planning. These five steps can help protect your savings, ease your mind and prepare you for your next advice session.

1. Keep calm and have a plan

Yes, the markets have been volatile this year. The Federal Reserve is raising interest rates, and that can be bad news for corporate profits, which is part of the reason stocks have fallen this year. Higher rates increase the cost of borrowing, whether it’s people buying houses and cars, companies buying equipment and land or governments funding their operating costs and infrastructure projects. Higher interest rates could cause a slowdown in spending, which should help tame inflation, but could also cause a recession.

If there is a recession in the U.S., it is likely to be shallow and mild. Households, on average, are coming into this slowdown with more savings than in the past, in part because many people spent less and saved more during the pandemic. Businesses, meanwhile, are stillscrambling to hire workers even as economic growth is slowing. Heading into the final quarter of 2022, inflation seems to have peaked, but it is still high, which means the Fed is likely to continue to raise rates. (You can read more about the Fed’s Nov. 2 decision to raise rates in a commentary by Brian Nick, Chief Investment Strategist for Nuveen, a TIAA company.)

2. Keep cash

Retirees and people about to retire should probably keep a bit more cash on hand these days than they might typically. Virtually all stock and bond indexes—and most mutual funds—are down this year. Selling investments that have lost money to fund your living expenses can be a double‐whammy: You’ll need to sell more shares to get the amount of money you’d typically want to spend, and that means you’ll be invested in fewer shares when the market rebounds. Having a little more cash and short‐term investments on hand mitigates this problem. If you’re no longer actively saving, you can create these cash reserves from Certificates of Deposit that come due, or assets that are less volatile than stocks or bonds, like Treasury bills. You also might want to sell risky assets that no longer suit your needs or your risk tolerance, and consider selling stock and bond funds that have seen big gains over the years and need to be trimmed back as you rebalance your account. Our advisors and online tools can help with these complicated decisions.

“Cash reserves offer a buffer against volatility and allow you to live your life with less worry, says Dan Keady, TIAA’s Head of Financial Planning. “You’ll feel better about paying for your current expenses knowing that the rest of your portfolio is still invested for the long term, when the markets eventually rebound.”

3. Keep reviewing your investments

If you’re worried about your retirement savings, it’s possible you’ve taken on more risk than is appropriate. Even if you’re not worried, this is still a great time to ensure you’re invested in a way that is most likely to get you to your goals. Decisions you made even a year ago could merit review.
The fact that stocks are cheaper is a silver lining for long‐term investors when rebalancing their retirement accounts. Retirees and people closing in on retirement often forget that they are still long‐term investors. A portion of your savings should be aimed at growing for 10, 20, even 30‐plus years, which means a stock allocation is critical for longer‐term growth.

4. Keep guaranteed income in mind

People focused on retirement generally have dual goals—growth for the long term and income for both the near term and long term. Income has been increasingly difficult to come by in the past decade: The S&P 500 index yields less than 2%, and the Bloomberg Barclay’s Aggregate index, a measure of the bond market, yields just barely above 2%. So $1 million invested in a 50/50 split between the two indexes would generate $20,000 a year in income. Paired with Social Security, that may or may not be enough. When the markets are down and your savings are shrinking, the income could also be in jeopardy¹.

That’s why most people would benefit from having an additional source of guaranteed income. As a participant in a TIAA retirement plan, you are in a better position than many Americans. A fixed annuity, such as TIAA Traditional, generates steady income by investing in real estate, farmland and other less‐liquid, income‐generating assets. As interest rates rise, Traditional typically provides a higher payout rate. That income is guaranteed to last throughout your entire life, and the amount you invest in Traditional will never decrease in value. The more you put into Traditional during your savings years, the higher your payout will be when you annuitize at retirement².

In times of market volatility, having some of your retirement savings allocated to Traditional could mean the difference between maintaining your spending habits in retirement and having to cut back.

5. Keep us in mind

We’re here to help. Our advisors and online tools can help you better prepare for retirement so you can get busy enjoying it. Contact your TIAA financial advisor to schedule a check‐in and see if you’re on track.