Never let a momentary market dip derail your investment strategy.
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Following last month’s sudden stock market plunge, anxious investors worldwide are questioning whether to safeguard their retirement pots by shifting capital from volatile shares into low-risk assets like certificates of deposit (CDs).
While the urge to flee to safety is understandable, financial experts caution against making hasty moves. Sudden downturns can trigger emotional decisions that ultimately damage long-term wealth.
“Stocks and CDs play very different roles in a well-diversified investment portfolio. Neither is inherently good or bad,” explains Keith Spencer, CFP, founder of Spencer Financial Planning, LLC.
Taylor Kovar, certified financial planner and CEO of 11 Financial, agrees that cash-equivalent vehicles offer temporary comfort. “CDs can feel like a safe haven in this kind of environment because they offer predictability, which is appealing when everything else feels shaky,” Kovar notes. However, he warns that this peace of mind comes with distinct trade-offs.
Why Long-Term Investors Should Stand Firm
For those with decades left before retirement, short-term market turbulence is merely noise. Historically, patient investors have been rewarded; the S&P 500 has delivered an average annual return of around 10% over multi-decade horizons. Leaving the market means missing out on the inevitable recovery and compounding growth.
“One of the biggest retirement risks is getting too conservative too soon,” warns Noah Damsky, CFA, principal of Marina Wealth Advisors. “Retirement can last for over 20 years, so get too conservative too soon, and you risk prematurely depleting your portfolio.”
Maintaining a portion of your portfolio in defensive assets is sensible, but the exact split depends on your age, financial goals, and risk tolerance. Consulting a professional financial adviser or utilising a digital wealth manager can help tailor the right balance for your needs.
When Shifting to Low-Risk Assets Makes Sense
The calculation changes significantly if you are on the cusp of retirement or already drawing from your pension. With a shorter investment horizon, there is less time to recover from a market crash. At this stage, capital preservation takes priority over aggressive growth, making fixed-income assets highly practical.
“For retirees, it would be recommended to allocate a higher percentage of your portfolio to lower-risk CDs,” says Faron Daugs, CFP, founder and CEO of Harrison Wallace Financial Group. Daugs suggests viewing these assets as a secondary layer of portfolio security. “Once your liquid investments — such as money market accounts — run out or become low, use a laddered CD approach. This allows CDs to mature and refill those buckets.”
Investors can also purchase brokered CDs directly through their investment accounts rather than moving cash to a traditional bank, though this route carries its own set of advantages and disadvantages to weigh carefully.
Overcoming the Emotional Trap of Market Volatility
Regardless of where you are on your career journey, letting panic dictate your financial strategy is rarely successful. Headlines are designed to provoke reaction, but successful investing requires discipline.
“For investors rattled by the recent dip, I’d say this: Don’t make emotional decisions in response to short-term volatility,” Kovar advises. “Step back, review your timeline, and make sure your investments match your goals and risk tolerance today, not what they were five years ago.” A resilient retirement strategy almost always strikes a balance, using equities for growth and fixed-income assets for stability.