Volatility Management and Retirement – What You Need to Know

Events like we have seen in early 2020 leave many investors wondering: Is volatility management part of my plan for retirement? And if not, what do I need to do to make that happen? 

The first quarter of 2020 was the fifth worst quarter over the last 70 years. The period was marked with extreme volatility: The S&P 500 dropped over 30% in 23 trading days; then it rallied 25 percent in about half that time. Such drastic market swings can be difficult for even the most steadfast investors and leaves virtually all investors concerned about their retirement savings as they watch portfolios take a hit.

SPX Index (S&P 500 Index)  Daily 2020-05-27 11-37-35 

Observing such declines can trigger a gut reaction and investors are inclined to move to cash to stop the bleeding. But when volatility is part of the plan and a prudent volatility management strategy is in place, investors have far less to worry about at night. They can rest easy knowing their portfolio and retirement future is safeguarded.

Here at Unified Trust, we work with both retirement plan investors and individual investors, and our message for both is the same: goals-based planning with volatility management strategies will smooth the ride and produce better long-term outcomes. Planning is everything!

Planning is Everything 

Market volatility and economic concerns are becoming the new “normal” for investors. In a survey by the National Financial Educators Council, 41% of individuals were more concerned about personal finances than coronavirus, underscoring how such drastic market moves influence investor sentiment. While these are very real concerns, there are strategies that are proving beneficial in the current environment.

Volatility Management for Employer Sponsored Retirement Plans

Manage volatility by managing risk

For many investors, the savings from their employer sponsored retirement plan will be their largest source of retirement income.  So, it’s very important that the plan design and investment strategies employ a prudent volatility management strategy to manage the risk that comes with significant market swings. 

Our goals-based approach starts with defining the goal and customizing a plan to achieve those goals with the least amount of risk possible. At Unified Trust we do this through the UnifiedPlan® Managed Account Solution which is administered as a Qualified Default Investment Alternative (QDIA).

The UnifiedPlan was specifically designed to improve outcomes through a goals-based volatility management strategy. It manages three distinct types of risk:

1. Factor risk: The plan uses outcome-driven policies that prioritize participant outcome and risk posture above investment manager performance to minimize factor risk.

2. Sequence risk: Sequence risk is mitigated through the use of wealth preservation strategies that protect near-retirees against sizable market losses.

3. Diversification risk: The use of stable value asset classes promotes diversification while offering guaranteed rate of return with less investment risk.  

The specific and strategic volatility management design displayed its merit within this year’s market environment. At the end of Q1 2020, the UnifiedPlan was outperforming target date fund peers by about 3-4% year-to-date. Notably, participants closest to retirement saw the best performance, outperforming target-date fund peers by 4.5% (as of 3/31/2020).

Volatility Management for Individual Investors (Wealth Management)

Leveraging a fiduciary role to manage volatility

Unified Trust serves as a fiduciary for every client and the associated responsibility is woven into every aspect of our culture and philosophy. As an extension of this, we take an active role in managing investment portfolios, so in good times and bad times, clients know we are doing everything possible to help them stay on track to achieving their goals.

Goals-based planning is not just about numbers or red and green arrows, it’s about where you want that investment to take you. It’s about building a roadmap that takes into account significant market volatility and downside risk, so when you inevitably hit those bumps in the road, you have peace of mind, knowing we’ve planned for this.

On the wealth side, our volatility management approach is centered on several key attributes:

  • Proper diversification with the right mix of stocks, bonds and cash investments.
  • Asset quality with carefully-screened investments that meet specific criteria, including management tenure and objectives.
  • Low cost investments that positively impact long-term performance.
  • A strategy that helps hedge against market declines during periods of economic contraction.
Your Goals 

Managing emotions during volatile markets

While volatility is normal - an expected component to the investing process - it doesn’t make it any more comfortable for the investor. It can be challenging to manage emotions during a scary time, particularly one that appears to be drastically impacting your retirement future. Staying the course, while still being responsive and proactive, is important but so is leaning on a trusted fiduciary who is there to always act in your best interest.

Having the right plan in place - one that is customized to your goals and employs a prudent volatility management solution - is essential. This is what will allow you to stay calm during highly emotional times.  This is what will help you tune out the noise from the nonstop media coverage. This is what will ultimately help you sleep better at night. We must plan for the bad times so that we can realize the good times.

That is what we are here to do.  We would be honored to do that for you too!

Unified Trust – Building Futures in the Interest of Others

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