The market has improved drastically since the depressing lows of March 2009, but we've all learned an important lesson. What goes up often comes back down, so it's important not to take anything for granted. Rather than assuming your retirement savings is invulnerable to market crashes, keep your feet firmly planted in reality and follow these steps to protect your financial future.
Diversify, diversify, diversify. This is the number one rule of financial planning: Never put all of your proverbial eggs in one basket. If one of your funds doesn't perform as expected, any losses will hopefully be balanced by gains in other funds.
Don't get emotional. Don't panic any time the market dips a little bit; this is not the time to make impulsive decisions. It's normal for the market to go through bumpy periods, and making drastic changes to your portfolio might just make your situation worse. Seek the guidance of a skilled financial professional, select the fund options that match your goals and risk tolerance, and try to have faith in your decisions for the long haul.
Keep some liquid assets in reserve. If you're retired, keep one to two years' worth of living expenses in liquid assets. This money won't earn big returns in interest, but it can serve as an insurance policy for your retirement fund. During times that your retirement account is earning low interest, you don't want to withdraw principal to cover living expenses. Protect your principal by keeping cash reserves in another account. Interest rates are likely to climb back to former levels before too long, and your fund may once again be able to produce the interest income that you need.
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