11 Nov If you’re nervous about the stock market

Q. With the recent stock market decline, I lost 13 percent of my portfolio. It was worse, but some came back. I don’t like it because I retire in three years when I’m 60. Any suggestions?
— Nervous

A. Every portfolio is going see movement as the stock market rises and falls.

The key is knowing your time horizon and making sure that the riskier portions of your portfolio have time to come back if there are losses.

And even if you have time to take risk, you need to be able to sleep at night.

At age 60, if you’re looking at retirement in three years, it sounds like your portfolio is more aggressive than it should be.

“I don’t want to die in a sky diving accident so I don’t jump out of airplanes,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “If you don’t want to lose that much money in the stock market, then don’t invest that aggressively.”

He says a portfolio with 50 percent stocks and 50 percent fixed income would cut your future losses substantially.

Today’s market climate probably isn’t going to give you a straight line up, so you need to take steps to protect your portfolio — and your sanity.

The markets have become volatile again, provoked by the fear of global growth slowing down due to a dive in Chinese stocks after China’s currency devaluation, said John Zeltmann, a certified financial planner with RegentAtlantic Capital in Morristown.

Zeltmann said along with signs of strength in the U.S. economy and the decline in oil prices, there are expectations that the U.S. Federal Reserve will gradually raise interest rates.

The result is a tug of war over the markets.

“Although this type of market volatility can be quite unsettling and can make an investor who is close to retirement, like yourself, feel nervous about the future, history has shown that these types of market declines are relatively common,” he said.

In the course of an average year investors are likely to see a decline of about 14 percent from peak values, Zeltmann said, citing a J.P Morgan study.

As investors, we can’t control or predict markets, he said. The best thing we can do is to accept that markets move in cycles and establish well-diversified portfolios that are built to handle any type of market environment.

Research shows that giving into panic and selling is often the worst thing you can do, Zeltmann said.

“For example, between 1995 and 2015, the S&P 500 returned an average of 9.9 percent, though the average investor only saw a 2.5 percent return during the same period,” he said, again citing J.P. Morgan. “Why? Jumping in and out of markets in reaction to market movements.”

Zeltmann offered these strategies to help you protect your nest egg from the inevitable unpredictability of the market:

1. Have a strategy:
Your goals, time horizon, and risk tolerance are key factors to ensure you have an investment strategy that is right for you. Your time horizon is the amount of time you can keep your money invested. Your risk tolerance should take into consideration your broader financial picture such as your savings, income, and debt—and how you feel about it all. Looking at the big picture can help you determine if your strategy should be aggressive, conservative, or somewhere in between.

2. Be comfortable with your investments:
If you are worried when the market goes down, you may not be in the right investments. If watching your balances fluctuate is too stressful for you, think about re-evaluating your investment mix to find one that feels right.

3. Diversify:
One of the most important things you can do to help manage the risk of volatile markets is to diversify. The goal is to have a mix of assets that don’t rise or fall at exactly the same time. While it won’t guarantee you won’t have losses, it can help limit them.

4. Do not try to time the market:
Trying to get in and out of the market at the right time can be costly, mainly because a significant portion of the market’s gains over time come in concentrated periods. Many of the best times to invest in equities have been those environments that were among the most frightening.

The bottom line is that the economy will always experience ups and downs, Zeltmann said.

“However, it is the investors who take a disciplined approach and diversify their portfolio that are almost always in a better position when the next market decline takes place,” he said. “A good plan will help you endure the peaks and valleys of the market, and will help you achieve your financial goals.”

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This story was first posted in November 2015.