Retiring Soon? How to Avoid Fund Volatility


When retirement is on the horizon, taking a second look at your investment portfolio is typically a good idea. You’re about to depend on this money completely and ensuring that the money is available when you need it is important. Most people who have money in a retirement account have the majority of it invested in mutual funds because they’re considered to be safe and easy. While generally this is true, you have to be aware of fund volatility. Volatility in a mutual fund could lead to losses over the short-term which could ruin your retirement.

Volatility is a metric that deals with how much the value of an investment moves over a period of time. In Some cases, volatility can be a good thing. If you are trying to accumulate a large amount of money, you might want to put your money into a volatile fund. These funds are typically in slightly riskier investments so that they have a chance of bringing in better returns. Many investors get into these types of funds while they are young and still working so that they can build up the value of their portfolios. However, when you get close to retirement, these same funds can be a bit too risky to have in your portfolio.

If you’re in a fund that has a high level of volatility and it has been performing well for the last few years, it may be due for a down swing. Winning with volatile mutual funds is all about timing. If you are invested in the mutual fund when you’re getting close to retirement and it goes through a down swing, it could negatively impact your ability to retire right away.

Funds are volatile because of the underlying investments that they contain. If you invest in a stock fund that is volatile, it is because the stocks that are in the fund are subject to move a lot compared to other stocks in the market. If you invest in a bond fund, you may think that you can get away from this level of volatility. However, investing in bond funds can be risky because changes in market interest rates can drastically impact the value of the bonds in the fund. If market interest rates are uncertain and are changing frequently, this can make bond funds very volatile.

Volatile funds tend to over exaggerate what is going on in the overall market. For example, when times are good and the stock market is doing well, volatile funds tend to do even better than the average stock and can bring in substantial returns. On the other hand, these funds also tend to do worse than the average fund when the stock market is performing poorly. Because of this, you should pay attention to how the market is doing overall and what forecasts say about it in the near term. While forecasts aren’t always right, it is still a good idea to do your homework so that you give yourself the best chance of success.

If you’re Getting close to retirement, it may be time to take your money out of the volatile mutual funds and put them into safer funds. Check out the volatility of a fund and find one that has a very low amount of it. Then put your money into these funds to continue adding relatively safe returns. In some cases, you may want to leave some of your retirement money in cash so that it is safe heading into your retirement. This depends on how close you are to actually retiring from your job. This way, your money will still be intact at that point.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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