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Q&A: How to ride out market dips in retirement and college funds

What happens in a recession when your college or retirement fund values drop? You may be worried — but some sound insights can help you weather the cycle.

A slide in the market is nerve-wracking for anyone with investments. But it can be especially worrying for those nearing retirement or about to send kids to college. A market drop can feel as if your well-planned goals are slipping away. Before you panic, however, know that there are steps you can take to help insulate yourself from those ups and downs in the market. Here are some common questions and answers.

Q: The market is down, and I’ve been checking my account balance(s) every day, but I’m getting more and more panicked. Now I’m worried my allocations were too aggressive. What do I do?

A: Checking your balance(s) daily will definitely boost your anxiety, and really isn’t a productive use of your time. Generally, the market recovers in the long run. Historically, even after extreme downturns, markets typically rebound. Instead of checking balances daily, start reviewing your balances only every few months. When it comes to allocations, there are all sorts of options based on your risk tolerance and time horizon.


Q: But a good friend is telling me to sell off the stock portions. Should I?

A: When your retirement or college portfolio takes a hit, it’s natural to want to sell off and stop the losses. However, nearly everyone agrees this is a mistake. Here’s why: When the market rebounds, you’ll buy back those investments at a premium. History has shown that if you hold your position, the market will generally gain back its value over time — and then typically goes up more from there.


Q: My oldest is going to start college in two years and the market dip has hit her college fund. What are some ways I can adjust to give her savings time to build back up?

A: You may have originally planned to cover the first several years of tuition with funds from your college savings, or thought you’d retire and jump right in to travel and hobbies. However, if you can be flexible, you may be able to give the market time to recover. For example, can you work one or two more years? For the first year of college, can you pay a portion of the tuition bill without touching savings, using a loan to cover the remainder? Strategies such as those may give the market time to recover slightly.


Q: If a market is eventually going to slide no matter what, how can I protect myself and my college or retirement goals?

A: Consider investing in target date funds: these adjust allocations and investment mixes based on your age or the proximity to your goal (sending a child to college, for example). In addition, you might consider building  a cash reserve as a method of paying for what is needed. You can also seek the advice of a professional to help guide you in your investment needs.

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