You're probably wondering what you should do, if anything, with your retirement account right now. Here are some strategies for you to weather the volatile market.

Strategies for investors in the accumulation phase

1. Understand dollar-cost averaging

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Dollar-cost averaging means that you are investing the same amount of money regularly. For instance, if you put $300 into your retirement account every month and leave it there to do its work, you're using a dollar-cost averaging investment strategy.

When you take on a dollar-cost averaging strategy, you put money into your retirement fund regularly, whether the market or a stock is down or up. The money goes into the account, regardless of how good or bad Wall Street is doing. Most people who do dollar-cost averaging are several years off from retiring. Investors who use this method may have some bad weeks, months and even years with dollar-cost averaging, but there will also be some great weeks, months and years as well.

Dollar-cost averaging relies on the premise that investors will end up with more wealth than they would if they only invested when times are good or if they only put their money in a savings account.

This method works because when times are bad, stocks may not be worth much, but investors can buy far more of them than when times are good. Eventually, the purchased shares will be worth far more than they were worth than when they were purchased at a lower price.

Here's one example of dollar-cost averaging: Shares of Vanguard's S&P 500 ETF (VOO) closed at $296.45 on February 3, 2020. If you made a $1,000 purchase that day using a dollar-cost averaging strategy, you would have bought three shares. On March 18, however, the closing price of the same fund was $220.15, meaning that $1,000 would buy you four shares. When prices are lower, you are able to buy incrementally more shares. Instead of trying to time the market, dollar-cost averaging enables you to take advantage of downturns by regularly contributing for long-term returns.

But back in 1995, the Dow closed at 5,023.55 for the first time, and it was a big deal. Four years later, when it closed at 10,006.78, that, too, was a big deal. Over time, dollar-cost averaging pays off for investors looking to accumulate wealth, but you need to have the time to invest.

2. Keep investing

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If you’re a dollar-cost investor, especially if you’re decades away from retirement, keep doing what you’ve been doing.

“If you're in the accumulation phase of investing, don't stop accumulating,” says Robert Forrest, a financial advisor with RBC Wealth Management in Omaha, Neb. “Yes, it hurts, but if you're consistently dollar-cost-averaging into a down market like this, you're buying when stocks are cheap. Your present self won't be comfortable, but your future self will thank you. You are investing the same amount of money right now, but you're buying a higher quantity. The quality of the S&P 500 hasn't gone down, but its price has. Take advantage.”

3. Don’t panic

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This may sound like a variation of keep doing what you’re doing, but it’s crucial. Chris Kampitsis is a financial planner with The SKG Team at Barnum Financial Group in Elmsford, New York.

Investing for the long-term is a funny thing,” he says. “We often know we won’t touch our funds for many years, but when current events concern us, we often react somewhat irrationally and try to change our long-term savings strategies.”

Kampitsis suggests not doing that.

"One of the aspects of regular periodic investing that I like the most is the power of dollar-cost averaging," Kampitsis says. "This allows you to accumulate shares of funds at a variety of prices throughout the year, whether you are normally paid monthly, weekly, every other week or twice a month."

He says that when stock prices are severely discounted, this can represent a tremendous long-term wealth-building opportunity for investors to scoop up shares in a disciplined manner throughout the downturn. "We don't know where the market might be one, six or twelve months from now, but we do know there will be a variety of prices along the way," says Kampitsis.

Strategies for investors nearing the withdrawal phase

4. Understand portfolio rebalancing

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Portfolio rebalancing involves selling some assets and buying others to maintain a targeted asset allocation.

In other words, maybe your portfolio is made of 60% stocks and 40% percent bonds, and you want to keep it that way. You realize that most growth is going to happen in investments that offer some risk, and you’re comfortable with that, which is why 60% of your portfolio is in stocks, but you also want some stability, so 40% is in bonds.

If stock prices go up for a while, as time passes, your stock allocation might rise to 70%. Now, your portfolio consists of 70% stocks and 30% bonds, so under portfolio rebalancing, you’d sell some shares to get back to the 60/40 investment ratio.

Granted, it sounds like a good problem to have. Your stock portfolio grew to 80%, so why not just keep it there? Even if it goes to 90/10, why not keep it there?

Well, you can, but the potential problem is that you now have 90% of your retirement portfolio in stocks and only 10% in bonds. What if something happened soon to make your portfolio worth much less? This scenario is why some investors like the idea of portfolio rebalancing. You generally always want some risk in a retirement portfolio, but if you didn't afford to see 90% of your retirement portfolio become worth far less, you would want to rebalance things.

5. Try to resist withdrawing cash

A woman withdraws cash from her investment account at the bank

It's understandable if the fluctuations make you anxious. You're tempted to take your money while it's still there. But Forrest hopes you'll reconsider if you can.

"If you're in the drawdown phase of investing, we hope you've been set up with an investment portfolio that is focused on income — dividends, bonds and so on," Forrest says. "As a general principle, when drawing down investments, withdraw as little as possible from your accounts while values are down. Pulling money while your accounts are down compounds the impact of the down market on your retirement."

6. Be disciplined about rebalancing

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This is crucial, says Kampitsis. If rebalancing is what you have been doing, keep doing that. If the stock portion of your portfolio has plunged, and instead of having your investments in 60% stock and a 40% bond portfolio, which Kampitsis says is considered moderate, you now have an imbalance — maybe you’re at 40% stocks and 60% bonds — you would want to rebalance.

“Rebalancing here, with the long-term view in mind, might enable you to purchase additional shares of equities at low valuations and bring your portfolio back to your intended ratios,” Kampitsis says.

7. Consider asset matching

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Kampitsis recommends this if you’re a retiree.

“And it is not too late to implement,” he says. “The thought process behind asset matching is as follows: Your fixed expenses should come from guaranteed income sources. Think social security, pensions, bond interest and annuities. Your discretionary expenses should come from risk on assets. Think funding vacations through growth mutual fund withdrawals.”

8. Consider a volatility buffer

A woman discusses personal finances with her partner, and they are both smiling
This is another strategy that Kampitsis recommends for retirees. “We encourage our clients who are using a completely market-based withdrawal strategy to set aside two to three full years of expenses in a conservative asset such as bonds, CD’s, whole life insurance or fixed annuities. Then, only withdraw from the asset in years when the market is down dramatically, in order to provide the equities and mutual funds time to recover from market calamity,” Kampitsis says.

He adds, “There is a lot of recent research and thought leadership that speaks to the effectiveness of this approach in increasing the lifespan of a typical retiree’s portfolio.”

9. Talk to your financial adviser

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If you don’t have a financial advisor, then read everything you can about financial planning and retirement accounts, and bounce ideas off your friends and family before you make any sudden moves. In other words, don’t do anything rash. The economy may not seem so hot right now, and just as you would if somebody you cared about were sick, you want to take care of your retirement accounts.

Whether dollar-cost averaging or portfolio rebalancing is your priority, you want to be strategic and disciplined in your approach. When the market is volatile, sometimes the best course of action as an investor is to maintain consistent healthy financial habits instead of reacting.

Geoff Williams is a freelance writer for MoneyGeek specializing in personal finance and small business issues.

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