What are common strategies to mitigate Market Risk?
1. Diversify and Allocate Wisely:
Ensure your asset allocation aligns with your risk tolerance.
Hold a mix of asset classes (e.g., stocks, bonds, cash, real estate) to avoid over-reliance on any single investment type.
2. Maintain a Cash Buffer:
Keep 1 to 3 years of living expenses in cash or short-term bonds.
This prevents forced selling of investments during market downturns.
3. Employ a Flexible Withdrawal Strategy:
Reduce withdrawals in challenging years and increase them in favorable ones.
Alternatively, implement "guardrails" where changes are only made when your portfolio crosses specific thresholds.
4. Rebalance Regularly:
Sell assets that have exceeded their target allocation.
Buy assets that are currently underweight to restore your desired allocation.
5. Stay the Course and Avoid Panic:
Develop a written investment policy or plan to guide your decisions during volatile periods.
Resist making impulsive changes based solely on short-term market fluctuations.