Managing Market Volatility in Retirement
By Daniel Baumgartner & Petra Peters
Although market fluctuations are a normal part of investing, they can be especially worrisome if you depend on your portfolio to support your retirement. Shifting from decades of accumulating wealth to drawing it down during retirement, combined with abrupt market fluctuations, can trigger intense stress about whether your retirement income can last throughout your golden years.
For investors with assets spread across the United States and Europe, the intricacies of market volatility are further exacerbated. Currency fluctuations, different economic cycles, and varied regulatory environments all contribute to a more complex investment landscape.
In this article, we share insight into our experience working with an international client base. We explore the challenges typically faced by global investors, the strategies that are most effective in managing those challenges, and specific cross-border investment considerations.
Key Challenges for Global Investors
Let’s start with an explanation of the key challenges for global investors, especially in retirement.
First, shifts in domestic and international economies can have a significant effect on portfolio values. An abrupt decline in one region can quickly spread across global markets.
Currency swings add another level of complexity. When converting foreign investment back to a domestic currency, exchange rate fluctuations can reduce returns and affect the total purchasing power of retirement income.
Beyond market dynamics, navigating the nuances of diverse tax laws and regulations across multiple jurisdictions is another major challenge. Maximizing after-tax returns requires an understanding of the tax implications of investment decisions in various countries.
Lastly, it’s critical to differentiate between short-term market noise and long-term investing fundamentals. Because they are often more sensitive to market swings, we’ve noticed that retirees are often tempted to make emotional decisions based on short-term volatility instead of long-term confidence.
Strategies for Managing Market Volatility
Now let’s go over the most effective strategies for navigating market volatility in retirement.
A fundamental approach is diversification. By lessening the effects of any one market downturn, distributing assets over several industries and geographical areas helps reduce risk.
This could entail spreading money across asset types including equities, bonds, and real estate as well as investing in both developed and emerging economies. A well-diversified portfolio can help soften the impact of market fluctuations and provide a more stable basis for retirement income.
We’ve also found it’s critical to strike a balance between growth and income. A combination of fixed income investments, dividend-paying stocks, and alternative assets can provide a blend of stability and growth potential.
Cross-Border Investment Considerations
Investing across borders introduces yet another layer of complexity, particularly when planning for retirement.
The U.S. and Europe have very different tax laws, estate planning rules, and financial reporting requirements, creating potential dangers for the unwary investor. It’s vital to understand these subtleties in order to optimize after-tax returns and provide compliance.
For example, it can be difficult to navigate the complications of foreign account reporting requirements and double taxation treaties, but they’re an integral part of enhancing your financial strategy and avoiding penalties.
Additionally, there are significant differences in the laws governing inheritance and estate taxes, requiring careful planning in order to preserve wealth and transfer it to beneficiaries efficiently.
Citizenship and residency are also pivotal factors. Your citizenship and place of residence may have an impact on your tax responsibilities, reporting requirements, and access to specific investment vehicles.
For example, a U.S. resident investing in European markets may have different tax ramifications than a U.S. citizen living in Europe. European nationals who invest in the U.S. must also navigate U.S. tax laws and regulations.
We’re Here to Help
The key to navigating market fluctuations and maintaining stability in retirement lies in working with professional financial advisors who specialize in global asset management and designing robust retirement plans.
At Terra Nova Asset Management, with the knowledge and experience to build financial strategies customized to unique situations, our mission is to form loyal and long-term relationships with our clients.
Does it seem like we may be a good fit? Reach out to us directly at 212-355-1234 or ppeters@terranovausa.com for the New York office (Petra) or 855-248-6630 or baumgartner@terranovausa.com for the New Jersey office (Daniel). You may also contact us here to schedule a meeting and we’ll get in touch with you soon!
About Daniel
Daniel Baumgartner is a founding partner of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Daniel has extensive experience in marketing, development of special U.S.-investment products, as well as customer acquisition and relationship management. His ultimate goal is to make a difference in his clients’ financial lives through honest investment advice. He strives to provide high-touch, personalized service and enjoys getting to know a client’s personality as it relates to their financial circumstances before crafting the right solutions. As money is a very personal subject, Daniel takes his responsibility as an advisor very seriously, forming long-term relationships with clients based on trust.
Daniel received his degree in finance and international business from New York University. Outside of the office, he is a hobby landscape, street photographer, and has a great interest in U.S. and European history (16th-19th centuries), believing it helps him answer the question “Why is something the way it is?”
About Petra
Petra Peters is a founding partner and the Chief Executive Officer of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Petra has decades of experience in the banking industry, asset management, overseeing the administration of individual accounts, and designing and advising specialized funds tailored to the requirements of international private and institutional clients. With extensive knowledge of both Europe and the U.S., she’s able to provide advice and services beyond the typical investment advisor. Petra desires for her clients to live a financially care-free life so they can pursue their passions, and she values their trust and gratitude. Creating invaluable friendships formed over years of partnership, some clients even consider her part of their family.
Petra’s interests outside of work include classical music, history, travel, charities, motorcycling, and golf. She is also on the board of a German charity.