Watching your retirement investments being taken on a rollercoaster ride can be stressful. It's human nature to feel anxious about an unstable stock market. You might even find yourself on the verge of taking emergency action in some form. But you're far better off taking a deep breath and focusing on the following principles of smart retirement investing.

1. Keep a long-term perspective

Although short-term swings in stock market returns have happened since the dawn of investing, market returns have been positive over long periods historically. Your approach to retirement investing should reflect this reality. This holds true even if you plan to retire within a few years. After all, you won't spend your entire nest egg on the day you retire; you'll want to keep most of it invested as a generator of growth to carry you through the rest of your life. And the rest of your life is likely to be a long time. According to the Social Security Administration, the average man who is 65 today is expected to live to 84, while the average woman who's 65 today is expected to live to the age of 86.6.

2. Focus on asset allocation

Pay attention to your retirement asset allocation — the way your assets are divided among different investment categories, including equities (stocks and stock funds), fixed-income investments (such as bonds) and cash equivalents (money market instruments). Your asset allocation will be the main factor behind your investment results.

At least once a year — more often if your life circumstances change significantly — check to see whether your asset allocation remains as you want it to be. Do you still have the right blend of asset classes, given your retirement goals, time horizon, return objectives and risk tolerance?

When making decisions about retirement investing, remember that, if your long-term return fails to exceed the inflation rate over the same period, the buying power of your nest egg will be eroded. Inflation risk can be just as damaging to your future retirement security as market risk (the possibility of realizing a loss on your investments).

You can get help with determining an appropriate asset allocation by using the Retirement goal on your EY Navigate™ website or mobile app.

3. Be diversified

You expose your savings to unnecessary risk if your retirement portfolio contains too many "eggs in one basket." You're better off diversifying — investing in a significant variety of assets. The main goal of diversification is to reduce the impact that a loss on any one asset (e.g., the stock of one particular company) could have on your overall portfolio.

Mutual funds and funds offered by workplace savings plans give you instant diversification by investing your account, pooled with the accounts of all other fund investors, in a professionally chosen set of multiple assets. You get even more diversification when you invest in more than one fund. However, you get a complete, diversified portfolio in a single "target-date" or "balanced" fund. Either of those fund types may serve well as your sole investment for retirement, provided that the fund aligns with your return objectives, risk tolerance and time horizon to retirement.

4. Don't try "timing the market"

When your retirement savings get dragged down by a declining market, you might wonder, "Should I get out of the market now and jump back in later when things get better?" Generally, no — you're better off holding tight.

Even if you're seeing losses on your retirement account statements today, they're only paper losses. They won't become realized losses unless you lock them in by selling today. And when you move your money in and out of investments in an effort to catch only the performance highs and avoid the lows, you're playing a high-risk game known as "timing the market."

Even investment pros are rarely able to succeed at this game. For example, investors who remained fully invested in the S&P 500 from January 1, 1987 to December 31, 2019 would have achieved an 11.28% annualized return. However, if trading had caused these investors to miss the S&P 500's 10 best days during that same period, their annualized return would have been reduced to 8.85%.

Bottom line: don't let short-term volatility in the stock market (or any other financial market) keep you from staying the course in pursuit of your retirement goals.

For more guidance on retirement investing, get in touch with your EY financial planner.

This material is provided solely for educational purposes; it does not take into account any specific individual facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting, or legal advice.