Katharine George, Financial Advisor at Wealthstream Advisors, sits down with Yahoo Finance Live to talk about ways investor portfolios can survive periods of market volatility, rebalancing and reducing risks, and financing for retirement in recovery periods.

Video Transcript

AKIKO FUJITA: Well, the wild swings in the markets this week have inflicted a lot of pain, some would say anxiety, for millions of Americans who have been tracking their retirement portfolio very nervously. We've got a guest who can answer some of those questions about what exactly you should be doing in this time of volatility.

Let's bring in Katharine George, financial advisor at Wealthstream Advisors. And Katharine, I know the rule of thumb is always don't panic when you're seeing these swings, but what are you advising your clients who've called in this week to say, what do I do as I see things chip away in my portfolio?

KATHARINE GEORGE: Right, well, I think the first thing is acknowledging that what we've been seeing in the news, coupled with market volatility, is frightening. And our instinct might tell us that we have to do something in order to protect ourselves. It's all about education on the front end. Our retirement accounts specifically might have the longest time horizon. You're not required to pull money out of your 401(k) until you're 72 years old. So you have plenty of time to ride the ups and downs of the stock market.

And there has never been a geopolitical event or any other type of event where the stock market as a whole has never recovered. That's why it's so important to be well diversified across different stocks. So I think once you really understand that there are ups and downs and sticking through it is important, it's easier to ride that wave.

BRIAN CHEUNG: Hey, Katharine, it's Brian Cheung here. But even though-- not everyone's going to say, well, should I pull my money out of my retirement account? Some people might be wondering, well, should I change the allocation of my fund and where my retirement money is parked at? And what would you say to those people, based off of the essential thesis that you just offered up, which is stocks will go up?

KATHARINE GEORGE: Yeah, so I would say kind of the first course of action is to rebalance. If you're feeling optimistic, you could take some profits in what has done better than others and buy things that haven't done as well this year, such as stocks. And ultimately, you're buying on sale. There should in a lot of for 401(k) plans, there should be an automatic rebalancing. However, you can go into your 401(k) plan and rebalance yourself. We often hear this age old kind of saying, buy low, sell high.

And sometimes our instinct tells us the opposite, is that when stocks go down, we should sell. And that's really not the best course of action. So I'd say if you're feeling optimistic, you could rebalance. But these events do teach us something about our risk tolerance. And I would say probably more than this event would be March of 2020. That was a much more drastic downfall.

And any of these events can say, you know, did my stomach drop? Was I watching the news every day? Could I not stomach that volatility? In which case, maybe you should reduce the risk in your portfolio for a long-term plan. We don't advise making short-term decisions, so maybe changing your allocation now, but adjusting it when you're feeling like stocks are back up again. But for long-term decisions, it's important to see how you're feeling and what amount of risk you can take.

AKIKO FUJITA: What about those who are a little closer to retirement age? Obviously, your risk tolerance, it depends on what your time horizon is. But if you are a few years out from retirement, that's going to be a scary thought looking at your portfolio. Is that when you advise putting aside more cash?

KATHARINE GEORGE: Well, really, we think about retirement and kind of post-retirement in our heads as two different things. But really, even after you retire, you still may have 35 years where you need this money to grow for you. So we try to take a longer picture such that we're not making any drastic change, whether it's at retirement or in the middle of your retirement. We try to just determine what is the rate of return you need to earn over these next X amount of years to reach your goals. And corrections or even bear markets can be scary.

But history and data shows that the recovery period is typically months, rather than years. And so it can be a little bit scarier when you're approaching retirement. But it is something you can kind of pull back on that risk if it's something that you're looking at the screens all day, and you really can't stomach the thought. But it is something to consider.

BRIAN CHEUNG: Well, essentially, for at least most people, at least right now, just HODL, something transferable from Bitcoin to 401(k). Katharine George, financial advisor at Wealthstream Advisors, thanks so much, and have a great weekend.