For investors who value peace of mind, financial markets have been quite accommodating over the past decade: stocks rising steadily, interest rates at historic lows, few gut-wrenching sell-offs.
Volatility is back, with the Dow Jones average frequently soaring or diving hundreds of points in a single day. On Tuesday, the blue chip benchmark plunged nearly 425 points, or 1.7 percent, extending its losing streak to five sessions, the longest since March 2017.
The shift since January has left many older investors anxious about a repeat of the meltdown of 2007-2008, which decimated portfolios at a time retirees and those approaching retirement were getting ready to tap their savings. Financial advisers warn against fretting over every twist and turn in the markets. But that can be hard to do, especially for older investors who don’t have decades to make up losses.
“We’re seeing worry on the part of our clients who are very close to or in retirement,” said Susan Brown, owner of Sound View Financial Advisors in Walpole, who has recommended some nervous investors shift to a more conservative blend of stocks and bonds. “I tell people it’s not healthy to be worried minute to minute. That stress isn’t good for you.”
More than 45 million Americans are over 65, the age when many begin drawing on their savings, according to the Population Reference Bureau, a Washington research firm. Tens of millions more will join them in the next 20 years. Because most employers have scrapped traditional pension plans with guaranteed payments, many of today’s retirees were forced to take their finances into their own hands by investing in personal retirement accounts.
Markets are gyrating amid Federal Reserve interest rate hikes, trade war jitters, and mounting global uncertainty, and that has some investors checking their personal accounts more often and paying closer attention to broader stock trends. They’re sizing up risks and opportunities, even if they’re not always acting on them.
“When I’m home, I’m watching [financial network] CNBC all day and I’m checking my portfolio three or four times a day — in the morning, before lunch, after lunch, and after the close,” said financial consultant Andrew Hurvitz of Hingham. Hurvitz, who turns 50 next month, is looking for a full-time job, and managing his investments as well as his mother’s.
At least once a day, B.J. Herbison, a retired software developer in Bolton, logs into his home computer, sometimes with his pet ferret perched on his shoulder, to view the Dow and the Standard & Poor’s 500 and reassess his financial prospects via an online calculator. The estimates it serves up vary wildly from day to day, but Herbison, 58, said he tries to take it all in stride.
“We don’t want to outlive our money,” said Herbison, whose wife, Linda, is also retired. “There’s volatility now, but if you’ve been watching for a few decades, you know that a lot of these market moves are overreactions. If you panic and sell, you’re going to lose a lot of money.”
While most investors shouldn’t be trading frequently in reaction to market gyrations, they do need to be more savvy, said Geoff Sanzenbacher, associate research director at the Boston College Center for Retirement Research.
The center’s National Retirement Risk Index — based on Federal Reserve data and last updated in 2016 — showed that half of all Americans households were “at risk” of not being able to maintain their standard of living in retirement.
Sanzenbacher said that as many private employers have eliminated pensions, they have shifted to so-called defined contributions plans such as 401(k)s where the investments and allocations are left up to workers, who must educate themselves on their options.
“When you had a pension, the risk was on your employer,” Sanzenbacher said. “People weren’t as exposed to the stock market as they are today. . . This is the first generation we’ve seen where many are relying exclusively on 401(k)s, so they stand to gain more if the market increases and lose when the market’s down.”
Veteran software developer Joel Sharasheff, 62, of Newton said he’s been tracking the markets more intensely as he’s been looking for a new job in recent months. “Since cash isn’t coming in now, I brace myself a little harder when I take a peek at my accounts,” he said.
While technology enables ordinary investors to follow market moves in real time, most are content to watch and refrain from the risky practice of day trading — buying individual stocks during price dips and bailing out of those that have climbed too fast.
“When people look at their accounts, they’re usually not doing any [trading],” said Nachum Sicherman, economics professor at Columbia Business School. “It’s really a story of psychology, not economic decision-making.”
In a 2015 research paper, Sicherman and three colleagues found that investors pay “selective attention” to their portfolios, checking in more often when markets soar. They found that log-ins to financial accounts dropped nearly 10 percent after market declines. “It’s the ostrich behavior,” he said. “People don’t want to see that bad things are happening. so they decide to wait.”
And sometimes waiting can be the smartest strategy.
Money manager John Dorfman, founder of Dorfman Value Investments in Newton, believes markets will stay choppy and may even drift downward over the next eight months. With stock valuations high, he’s shifted a portion of his clients’ assets into gold and cash — considered safe havens in uncertain times. But the largest parts of the portfolios he manages remain in stocks. Because the underlying US economy is strong, Dorfman said, he considers the sideways market to be temporary.
While there have been some scary market drops this year, there haven’t been enough scary days to spook Dorfman’s clients into selling off larger chunks of their stock holdings. “If we get a few more 2 percent or 3 percent [daily] downturns, my phone will start ringing and I’ll have to do some hand-holding,” he said.
Dorfman, who at 71 is close to the age of many of his clients, said he understands the psychology. “We baby boomers painted ourselves into a corner,” he said. “Because we didn’t accumulate an adequate nest egg, we have to take our chances in the market.”