Investing Spotlight: Lessons from the 2018 Stock Market

There was a lot to learn from the stock market volatility of 2018. The S&P 500 ended the year down about 4 percent its worst drop since the 37 percent loss during the financial crisis in 2008. And the fast timing of the downturn made it seem even more surprising the market reached its high point for the year near the end of third quarter 2018, then plunged 13 percent in the last three months of the year.

This experience illustrates the importance of matching your investments to your time frame and risk tolerance. When you step back, you see that the S&P 500 had positive returns for nine of the past 10 years. In fact, the market earned over 20 percent in 2017. If you have a long time horizon, you should be able to weather these ups and downs and keep a long-term perspective. The S&P 500’s average annual return was 13 percent over the past 10 years.

But market fluctuation also shows how important it can be to start shifting some of your money to more conservative investments such as bond, money market, and stable value funds as you get closer to retirement and plan to start withdrawing money. In that case, you may not be able to afford even one year with a negative return as people who retired in 2008 remember too well.

It’s also smart to diversify1 your investments within each asset class investing some money in large-company stock funds, some in small-company stock funds, and some in funds that focus on international companies. That reduces your risk, because each type of investment is likely to perform differently from year to year.

You can make these moves yourself, or you can invest in a target-date fund,2 where investment professionals create diversified portfolios based on various expected retirement dates. A target-date portfolio gradually shifts to more-conservative investments as the retirement date gets closer.

For more information about managing investments in volatile markets, see

1 Diversification does not protect an investor from market risks and does not assure a profit.

2 A target-date fund is not a complete solution for all of your retirement savings needs. An investment in the fund includes the risk of loss, including near, at or after the target date of the fund. There is no guarantee that the fund will provide adequate income at and through an investor's retirement. Selecting the fund does not guarantee that you will have adequate savings for retirement.


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