Actively work with participants to understand their reactions to disruptions and variability in the market and create targeted communications to help them stay focused on their retirement goals.
Short-term market events can obscure long-term goals. Understand this and tailor strategies to help meet the needs of participants at different stages of their careers.
Prepare for future market volatility by stress-testing portfolios, ensuring diversification, and reviewing participants’ retirement readiness to adjust plan design as needed.
Volatility is a fact of investing life – but market turmoil on a large scale can raise concerns among even the most battle-hardened investors about long-term market trends and impacts.
When volatility strikes, here are three action steps that plan sponsors may want to consider:
Market volatility can spook even the most experienced investors. It can be beneficial to engage participants to assess how they're responding to volatility.
Take a look at asset flows to get a sense of how participants are reacting. If necessary, work with your investment provider to develop targeted participant communications to help ensure individuals stay invested for their retirement objectives.
Here are talking points you may want to consider:
Missing top-performing days can hurt your return
Compares hypothetical return of $100,000 invested in the S&P 500 index over a 20-year period (2003-2023) against the return if top-performing days were missed.
Sources: BlackRock; Bloomberg. Stocks are represented by the S&P 500 Index, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is no guarantee of future results. For illustrative purposes only. It is not possible to invest directly in an index.
The following table illustrates that performance after selloffs is often very strong:
12-month performance following major declines
| S&P 500 biggest declines | Black Monday 8/25/87-12/4/87 | Gulf War 7/16/90-10/11/90 | Asia Crisis 7/17/98-9/31/98 | Tech Bubble 3/27/00-10/9/02 | Financial Crisis 10/9/07 -3/9/09 | US Credit Downgrade 3/10/11–10/3/11 | Trade War 10/3/18-12/24/18 | COVID-19 Pandemic 2/20/20-3/23/20 |
|---|---|---|---|---|---|---|---|---|
| % decline | -33.5% | -19.9% | -19.3% | -49.0% | -56.8% | -19.0% | -19.6% | -34% |
| Next 12 months | +21.4% | +29.1% | +37.9% | +33.7% | +68.6% | +32.0% | +37.1% | +75% |
Source: Morningstar. Returns are principal only not including dividends. Stocks are represented by the S&P 500 Index, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is no guarantee of future results. For illustrative purposes only. It is not possible to invest directly in an index.
Short-term market events can block our vision of the long term. The purpose of a defined contribution plan may remain the same, regardless of a participant's age: to grow their savings enough so that it may help support their lifestyle in retirement.
Yet while the goal may be the same for all participants, their needs may depend on where they are in their career. Participants in, or near, retirement want market growth to help fund potentially decades of retirement, but they also want to mitigate losses that could derail their retirement plans or spending. Younger participants have more time to recover from volatility – and more time to contribute savings.
Many target date funds are designed with a heterogeneous participant population in mind. These strategies determine the appropriate asset allocation mix to help investors grow and preserve their retirement savings.
Whatever your view on the current environment, we expect participants to face bulls and bears throughout their career and retirement. We can’t say when, but we will see severe volatility again. Now is the time to prepare for the next round by considering the following questions:
Speak to your BlackRock representative if you want to explore any of these issues.
A market is considered ‘volatile’ when its prices fluctuate significantly over a period. This can happen for many reasons, including economic news, central bank actions, or unexpected events.
An ‘age-appropriate exposure’ in a target date fund refers to the allocation of investments within the fund that gradually shifts to become more conservative as the investor gets closer to their retirement date, meaning younger investors have a higher percentage of stocks (higher risk) while older investors have a larger portion of bonds (lower risk) to match their tolerance at different life stages.
Asset flows into a target date fund directly indicate the level of investor participation in that fund, as large inflows signify that a significant amount of money is being invested in the target date fund, signifying high participation, while outflows suggest investors are pulling money out, indicating lower participation.
Prepare for a stable retirement with insights on guaranteed income options. Explore financial strategies to enhance your retirement security today.
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