PLANADVISER - January/February 2019 - 17

The 'Volatility' Conversation
Advisers can help refocus participants on their respective time horizon
IN an interview with PLANADVISER
last August, Katherine Roy, chief
retirement strategist at
J.P. Morgan,
suggested that the long streak of equity
market gains retirement plan investors
enjoyed heading into the early part of
last year created a fair amount of overconfidence
and complacency.
" It's always important for people to
understand the big picture of where
we might be in a market cycle, " Roy
said. Often, participants focus on what
markets have done in the last several
weeks or months, and they forget
the basics of long-term investing and
saving, she said.
According to Roy, and others, it is
common to see participants get upset
over a few bad market days or weeks
and make an ill-timed trading decision.
Bailing out of a falling market
may feel like the correct decision, but
over the past 20 years, Roy said, six of
the best market days occurred within
10 days of the worst days.
Roy's comments offer some helpful
context when it comes to talking with
investors about the recent drops in
equity market prices in the U.S. and
globally. While the older cohorts must
seriously consider sequence of returns
risk, younger cohorts should be
encouraged to think about the benefits
of volatility.
Simply put, Millennial investors
can afford to assume significant
risk, given their longer investment
horizon. Those nearing retirement,
Roy suggested, might have already
de-risked, to protect their wealth
during 2018. Those who have not
de-risked and who have suffered
losses, though, might be best served by
sitting tight and waiting for a rebound
before making big adjustments.
She encouraged participants to
consider allocating a " cash cushion, "
or emergency savings fund, when the
opportunity next presents itself, also
cautioning that now may not be a great
time to create a cash cushion by selling
equities, given that leading economists
remain largely optimistic about market
prospects for the near term.
" [But] if they have such a fund and
they face volatility at the retirement
date, they're not going to be pulling
as much money out of a declining
market from a sequence of return risk
perspective, " she explained.
Participants stuck in the middle-
meaning a solid 10 to 15 years before
retirement-should
ask
themselves
if they are de-risking appropriately,
taking into account their time left
in the workforce and their expectations
for longevity in retirement, she
said. Ultimately, understanding the
importance of regularly assessing risk
tolerance strengthens retirement prospects,
whether during a bull market,
bear market or even periods of backand-forth
volatility.
Another expert to speak with
PLANADVISER about market volatility
last year was John Diehl, senior
vice president of strategic markets
for Hartford Funds. Like others, he
warned investors that the middle of
a bout of market volatility is, generally
speaking, not going to be the best
time to adjust their portfolio in a big
way, especially if they will be turning
wholesale away from risky assets.
As Diehl laid out, one of the hardest
things for plan advisers and sponsors
to do is to generate a long-term investment
focus among participants.
-John Manganaro
Women Plan to Make
Their Money Grow
Still, only 24% say they understand investing
SEVENTY-TWO percent of women across
all ages plan to take steps within the
next six months to make their money
work harder and grow, according to
Fidelity Investments' " 2018 Women
and Investing Study. "
Forty-four percent of the women
reported investing in stocks and bonds
with money they have outside of retirement
accounts and emergency funds,
compared with 59% of men who said
they take this action. The other 56% of
women reported not investing, leaving
nearly all of their savings in cash or
bank accounts, which earn less than
1% in interest.
Only 24% of the women said they
are comfortable with their investment
knowledge. If given $25,000 to invest,
only 44% said they would know what
steps to take to do so. Of the working
generations, Millennial women appear
the most comfortable: 48% said they
invest their money vs. 40% each of
Generation X and Baby Boomer women.
Thirty-five percent of women said
they have $25,000 or more sitting
in savings. Forty percent said their
finances keep them up at night at least
once a month.
" Women need to demand more
from their money, so they can control
their financial future, " says Kathleen
Murphy, president of Fidelity Investments'
personal investing business.
" Women deserve to have their hardearned
savings work just as hard as
they do every day. " -Lee Barney
planadviser.com January-February 2019 | 15
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PLANADVISER - January/February 2019

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