How to respond to stock market volatility? Depends on your age
If you’re a young investor, your rate of return typically matters less than your savings rate, said James Sweeney, a CFP and founder of Switchpoint Financial Planning in Lehi, Utah.
He provided an example: If you’re 30 with $20,000 invested, whether you earn a 10% or a 5% return will only result in a difference of around $1,000.
But, Sweeney said, “if I can save aggressively, and put an extra $5,000 toward retirement, that has a much bigger effect on my portfolio value.”
People in their 20s and 30s who are investing for retirement really are best off doing nothing as the market rages, said Alex Doll, a CFP and president of Anfield Wealth Management in Cleveland. When you put money into your 401(k) during a downturn, you’re actually taking advantage of a low-cost environment.
However, you don’t want the money you need for near-term expenses in the stock market, because it has a greater chance of losing value, said Nicholas Scheibner, a CFP at Baron Financial Group in Fair Lawn, New Jersey.
Keep the savings for, say, a home purchase within the year, in cash or CDs.