Market volatility in 2022 is certainly causing investors to think twice about looking at their retirement portfolios. With both stocks and bonds heading into bear market territory amid inflation fears, retirement accounts have fallen, paving the way for options to mitigate volatility.
Major market indexes tied to retirement accounts are certainly causing a lot of pain. The S&P 500 is down about 20% so far this year while the Nasdaq 100 is down close to 30%.
While it’s easy to simply keep from looking at the retirement account in order to avoid the pain of viewing a sea of red, the fact of the matter is that retirees, in particular, have to eventually look. This is especially the case when it comes to making minimum distributions.
On the other hand, young retirement account holders have time. They can simply wait for an eventual market rebound.
“But the fact is, a lot of people do have to look. If you are a retiree, you have to be paying attention because if you have to take those required minimum distributions from your retirement accounts this year, you’re going to be selling, and that’s not going to be a pleasant situation for you,” said Yahoo Finance’s Kerry Hannon. “So it’s pretty rocky and pretty scary. But frankly, if you’re young, you’ve got time, right? We’ve been through these cycles. You have time for things to bounce back. Even if you’re nearing retirement, you have time for it to bounce back.”
Turning Down the Volume on Volatility
When it comes to exchange traded fund (ETF) investors, they have options as well. One is to essentially turn down the volume on volatility with funds like the American Century Low Volatility ETF (LVOL), which gives investors exposure to active management, meaning that portfolio managers can check the pulse of the markets and get in or out of positions depending on how the market is behaving.
This dynamic exposure comes at a low-cost expense ratio of 0.29%. The fund screens for asymmetric, or downside, volatility and invests in companies with strong, steady growth.
Key features of the fund as presented on the product website:
- Emphasizes strong fundamentals to limit potential risk of speculative companies with questionable profits.
- Expands risk measures beyond volatility to capture other downside and balance sheet risks.
- Focuses on volatility at the portfolio level as well as the individual stock level.
- Uses a rebalancing strategy that actively responds to changing market conditions.
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