When you’re earlier in your investment career--in your 20s, 30s, and 40s, and maybe even into your 50s--market volatility is often pretty easy to shrug off. To be sure, some of us get more stressed out in volatile markets than others. But the fact that retirement is still many years in the future means that market volatility is mostly a nuisance, a headache, a stressor at that life stage. Your portfolio has time to recover, and market weakness, even really bad troughs like 2009, isn’t likely to make or break your plan.
That all changes in the years leading up to retirement, though, as well when you’re retired. If you haven’t taken steps to protect your portfolio and your plan ahead of serious market gyrations, the short-term nuisance of volatility can turn into actual risk in a hurry. Volatility is the fact that markets go up and down as the years go by; it’s something that you just have to put up with unless you’re willing to settle for the meager yields that guaranteed investments offer. (And I wouldn’t recommend that, as inflation could gobble up most of your return and then some.) Volatility becomes risk if those gyrations coincide with a time when you need to spend your money and you haven’t taken steps to defend against that possibility.