Don't Pull Your Retirement Savings From the Stock Market Without Reading This First

Stock market drops can be scary, especially when your retirement savings are affected. Following last month’s market plummet, many investors are understandably nervous about keeping their nest egg in something as volatile as stocks. But does that mean you should move your money into lower-risk assets like certificates of deposit?

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Not so fast, experts say.

“Stocks and CDs play very different roles in a well-diversified investment portfolio. Neither is inherently good or bad,” said Keith Spencer, CFP, founder and financial planner at Spencer Financial Planning, LLC.

“CDs can feel like a safe haven in this kind of environment because they offer predictability, which is appealing when everything else feels shaky,” says Taylor Kovar, certified financial planner and CEO of 11 Financial. But, he warns, “There are some trade-offs.”

Here’s what you need to know before you upend your investment strategy.

Read more: The Simple $1 Trick Helped Me Pay Off Debt and Retire on My Terms. Here’s How It Works

If you have decades before retirement, stick to the plan

Stock market swings are stressful but a smart investing strategy factors in the dips. The S&P 500 has historically delivered about a 10% annual return for investors who keep their money there for decades. If you have many years before retirement, you can afford to ride out the waves and grow your money over the long term.

“One of the biggest retirement risks is getting too conservative too soon,” said Noah Damsky, CFA, principal of Marina Wealth Advisors. “Retirement can last for over 20 years, so get too conservative too soon, and you risk prematurely depleting your portfolio.”

Keeping some of your retirement savings in low-risk assets is wise, but the amount depends on a number of factors, including your age and risk tolerance. A financial adviser or robo-advisor can help you create the best strategy for you.

If retirement is near, low-risk assets like CDs make more sense

If you’re close to retirement – or are already retired – you have less time to recover from stock market dips. So, your priority should be less on growing your nest egg and more on preserving it. In this case, allocating more of your savings to low-risk, fixed-income assets like CDs and bonds can be a smart move.

“For retirees, it would be recommended to allocate a higher percentage of your portfolio to lower-risk CDs,” said Faron Daugs, CFP, founder and CEO at Harrison Wallace Financial Group. “Think of it as a second tier of stability in your portfolio. Once your liquid investments – such as money market accounts – run out or become low, use a laddered CD approach. This allows CDs to mature and refill those buckets.” You can learn more about CD ladders here.

Again, a financial adviser can help you determine your best route.

Note that you can buy a brokered CD through your brokerage account rather than taking money out of the stock market and putting it into a bank CD. However, there are pros and cons to consider.

Don’t let emotion derail your retirement plan

Whatever your age and investment goals, don’t let the economic headlines scare you into making any drastic changes to your retirement strategy.

“For investors rattled by the recent dip, I’d say this: Don’t make emotional decisions in response to short-term volatility. Step back, review your timeline, and make sure your investments match your goals and risk tolerance today, not what they were five years ago,” said Kovar. “A well-balanced plan usually includes both stocks and CDs, one for growth, the other for peace of mind.”

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