Estimate Time7 min

8 ways to invest confidently in retirement

Key takeaways

  • If you've sold your investments due to market ups and downs, reinvesting can help get your plan back on track.
  • Staying disciplined with your saving and investing is key to helping account balances recover and achieving long-term goals.
  • A financial plan is helpful when everything is booming but it's critical in economic downturns.
  • Stress test your plan to see if it's still on target for your goals.

When the stock markets start to slide, it can be difficult to stay invested. But time and again, financial professionals have cautioned that falling markets can turn on a dime when things seem only slightly less bleak than the day before. Historically, every severe downturn has eventually given way to further growth.

Despite market pullbacks, stocks have risen over the long term

This graphic shows the S&P 500 Index since 1985. Though significant downturns like the Dot-Com bubble and the Global Financial Crisis were hard to stomach at the time, the market recovered and moved on.
Source: Fidelity Investments. Past performance is no guarantee of future results. See footnote 1 for details.

Steps to consider now

Consider these 8 ways to make sure your financial plan is on track through down markets so you're positioned to benefit from potential growth later.

1. Try to stay disciplined with your investing

Staying invested through downturns can seem counterintuitive but it can be key to benefiting from potential rallies and the long-term growth potential of the stock market. Missing just a few of the best days in the market can undermine long-term return potential.

Missing out on best days can be costly
Hypothetical growth of $10,000 invested in the S&P 500 Index
January 1, 1980–June 30, 2022

Not missing any days would have resulted in $1.06 million. Missing just the 5 best days in the market would drop the total 38% to $656,000. Missing the 50 best days would result in a total of just $76,000. Results have been rounded the nearest thousandth.
Past performance is no guarantee of future returns. Source: FMRCo, Asset Allocation Research Team, as of June 30, 2022. See footnote 2 for details.

2. Work to maintain a diversified investment mix

Setting and maintaining your diversified asset allocation are among the most important ingredients in your potential long-term investment success. Though diversification and asset allocation won't ensure gains or guarantee against losses, they may smooth out returns for the level of risk you choose to target.

Read Viewpoints on The guide to diversification

Diversification can help smooth the ups and downs of your portfolio
2020: S&P 500 vs. 60% stocks/40% bonds investment mix

When the market fell in 2020, the 60/40 portfolio experienced less of a decline than the S&P 500 Index. Both were indexed to 0 at the beginning of February of 2020.  The 60/40 mix dipped slightly over 20% while the index fell nearly 35%. By June of 2021 the 60/40 mix was up 20% relative to the Feb. 2020 baseline and the index was up 29%.
The 60/40 investment mix experienced less volatility than the S&P 500. Daily data. Source: FMRCo, Bloomberg, Haver Analytics, FactSet. S&P 500 and Barclays US aggregate. The 60/40 portfolio performance reflects total index return in which includes reinvestment of all cash distributions. Data as of June 2021.

3. Consider reviewing investments at least annually and rebalancing as needed

Big shifts in the market can throw your plan off track. For instance, if you had a portfolio with about 60% stocks and about 40% bonds in January 2020, the portfolio would have been closer to 52% stocks by the end of March 2020.

When investing for Fidelity's managed account clients, the investment team believes that regular rebalancing is an important activity to help clients remain invested in a manner that is consistent with their financial goals.

As a general rule, Fidelity suggests rebalancing if the share of stocks, bonds, or cash veers more than 5%–10% from its target weight in your portfolio. For instance, if the stock market goes up or down significantly, you may have more or less risk than your plan calls for, and may want to adjust your holdings to return to your target asset mix.

It can also be a good idea to evaluate your investment mix if your life goals change.

Read Viewpoints on Give your portfolio a checkup

Fidelity Viewpoints

Sign up for Fidelity Viewpoints weekly email for our latest insights.

4. Consider reinvesting if you already sold out of the market

Seller's remorse can happen to anyone. If you've sold all your investments and are on the sidelines during a recovery, it can be difficult to catch up. But there's good news: You can reinvest. Eventually, the market has historically gotten through these periods and gone on to produce positive returns—the largest of which often come right after big selloffs.

Median returns following large stock market selloffs (1950–2022)

After significant corrections, in which the market is down less than 20%, stocks have historically returned an average of 30% one year later. For the year following a bear market, which sees the market down 20% or more, the average historical return has been 37%.
Past performance is no guarantee of future results. Returns were calculated using daily market returns for the S&P 500 for the time period following the market low after each correction and bear market from 1950 to 2022. Source: Fidelity Asset Allocation Research, as of June 30, 2022. The impact of taxes and fees are not considered in this hypothetical illustration.

When to get back in

If jumping back into the market all at once seems too risky now, consider a dollar-cost-averaging strategy, putting a set dollar amount into a portfolio each month. While dollar-cost averaging won't insulate you from losses or guarantee a profit in a volatile market, investors can purchase more shares when prices are lower, and fewer when they are higher. But for dollar-cost averaging to be effective, an investor must continue to make investments in both up and down markets.

5. Consider the impact of taxes

When investing outside of tax-advantaged accounts (like an IRA, 401(k), or HSA) the taxes generated by realizing gains on investments may lower your after-tax returns.

Strategies like asset location or tax-loss harvesting may help reduce the impact of taxes.

  • An asset location strategy can help ensure that your investments are held in accounts where you pay lower taxes. By putting tax-inefficient investments in tax-deferred or tax-exempt accounts rather than in taxable accounts, you can potentially improve the overall tax efficiency of your investments.
  • Tax-loss harvesting may allow you to offset taxes on realized gains. And, if you have more capital losses than gains, you can use up to $3,000 a year to offset ordinary income on federal income taxes, and carry over the rest to future years.

6. Evaluate your emergency fund

Generally, it's a good idea to keep 3 to 6 months of essential expenses in cash or cash-like investments (like a money market fund for example) in case of a loss of a job when you are still working. As you move toward retirement, it’s also a good idea to keep a cash reserve to prepare for any unexpected large expenses. If you want to be extra cautious, building up your cash savings to cover a year or more of essential expenses may help you feel more comfortable and prepared for the unexpected.

7. Have a plan for retirement income for good markets and bad

People are living longer now which means planning for a retirement that may last 20 or 30 years—or more. For more people, that means building a retirement income plan that includes growth potential as well as income guarantees and flexibility. Fidelity suggests a layered approach, which includes 3 things:

  • Guarantees to ensure core expenses are covered. These can include Social Security benefits, pensions, and annuities.4
  • Growth potential to meet long-term needs and legacy goals. This would come primarily from the stock portion of your investment mix.
  • Flexibility to refine your plan as needed over time. Combining income from multiple sources can help reduce the effects of some important key risks, such as inflation, longevity, taxes, and market volatility.

The ability to be flexible with withdrawals from investments during and after market downturns can have a significant impact on the success of your retirement income plan.

Read Viewpoints on The impact of down markets for retirees

8. Stress test your retirement income plan

Instead of focusing on market ups and downs, stress test your retirement income plan, and make short-term adjustments as needed. How can you do this? One way is to work with an investment professional who can help you test drive your investment plan by illustrating the potential trade-offs of different strategies under different market scenarios. They can use planning software to run hypothetical scenarios and illustrate the potential implications of several different investment paths. Knowing that your plan is designed to provide the income you need can be comforting. Talk to a Fidelity advisor or other financial professional to understand how market downturns could affect your income.

Read Fidelity Viewpoints: Test drive your investment strategy

Focus on what you can control

In the short term, extreme market fluctuations are painful. But over time, they may have less of an impact on long-term goals than one might fear. That's because focusing on the things you can control, and continuing to save and stay invested with a diversified plan, can have an even bigger impact on the outcome.

Let's work together!

We can help you create a plan for any kind of market.

More to explore

1. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation. S&P and S&P 500 are registered service marks of Standard & Poor's Financial Services LLC. The CBOE Dow Jones Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. You cannot invest directly in an index. 2. The hypothetical example assumes an investment that tracks the returns of the S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. There is volatility in the market, and a sale at any point in time could result in a gain or loss. Your own investing experience will differ, including the possibility of loss. You cannot invest directly in an index. The S&P 500® Index, a market capitalization–weighted index of common stocks, is a registered trademark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation. 3. The S&P 500® Index is an unmanaged, market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to present U.S. equity performance.

MSCI ACWI (All Country World Index) ex USA Index is a market capitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States.

Bloomberg Barclays US Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
4. Guarantees are subject to the claims-paying ability of the issuing insurance company.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Fidelity managed accounts refer to the discretionary investment management services provided through Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. These services are provided for a fee. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, FBS, and NFS are Fidelity Investments companies.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Investing involves risk, including risk of loss.

Indexes are unmanaged. It is not possible to invest directly in an index.

Past performance and dividend rates are historical and do not guarantee future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917