Money dictates your time to retire. It seems simple — but also, perhaps, complicated by current market fluctuations.
A large market decline at the end of 2018 left many investors in a state of nervousness not seen since 2008. After a recovery that saw the stock market soar and interest rates decline, volatility is back. Although it’s been more than 10 years, we still have 2008 burned into our minds because of how bad it hurt. As humans, we tend to remember pain more than gain.
One of the best lessons to learn from ’08 — and one to invoke now — is having your portfolio positioned properly to weather all market conditions. Many people who were near or in retirement back then may have taken such a hit that they nearly got wiped out, taking years to fully recover.
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For those who have 2019 targeted as their retirement year, or are planning retirement for the near future, it is absolutely vital to position your portfolio in line with your risk tolerance and retirement goals.
In some cases, your retirement date may move back if your portfolio takes a hit right before retirement. Depending on the performance of the stock market, you may be forced to move your retirement date back — but more importantly, you can still help avert being set back financially. Here are four tips to help better position yourself for retirement in the wake of market changes:
Balance risk.
I like to say it’s far better to have a boring portfolio and an exciting retirement than vice versa. That approach is especially applicable right now. Because of the market being on an uptrend the past nine years, people may have significantly more money invested in equities than ever before. Now, they’re heading into retirement and finding out just how much risk they’re taking. After a negative 10% swing in late 2018, they may have taken some big hits. That might sting particularly hard for those planning to retire in the next year or two. However, it is important to find out how much risk you are taking while the markets are still at a relative high, as they are now.
Don’t react emotionally.
Perhaps you haven’t positioned yourself correctly or your adviser hasn’t positioned you correctly. Regardless, it is important not to react emotionally.
People first need to undergo an investment “stress test.” Advisers sometimes do this by showing investors how their portfolio would perform in both negative markets and positive ones. For example, what’s been trending lately is people are heavily invested in stocks. You see a lot of people who want to jump on the latest trend — and sometimes that can be a decision that could negatively impact their financial situation. In 2017, for example, the EAFE index — an index designed to measure the performance of developed markets outside of the U.S. and Canada — was up roughly 25%. Many jumped in, and for some, it turned out to be one of the worst trends to follow in 2018, as it plunged 13.4%.
I believe that much of the market action is driven by fear and greed. We’ve seen a lot of dramatic swings in the market, sometimes in the course of a single day. A lot of people might react emotionally, wanting to be the next Warren Buffett and considering themselves a guru in terms of timing the market. Don’t be one of those impulsive people.
Get a second opinion.
Whether you’re managing your own retirement funds, your own 401(k), or maybe you’ve been with an adviser for years, it’s a good time to get a second opinion to see how well-positioned you are — or are not — against market volatility. Positioning yourself properly for retirement is a tough field to play right now, with interest rates having risen in 2018 and the potential for more increases and the markets being volatile. However, a well-versed fiduciary adviser should be able to give sound guidance.
Understand bonds.
There’s a rise in the amount of portfolio management being done by computers. When certain market events happen, those computers are programmed to sell, and when money managers are selling, that can drive a market to wild swings.
Tied in with computer-generated management, we saw the yield curve go inverse. That means short-term bonds were starting to pay more than long-term bonds, and that curve historically has been a precursor to a recession. Many portfolio managers and computer-generated management have in their programs to sell when the yield curved becomes inverted. Their trading did not cause the yield curve inversion, but it snowballed the volatility of the market by selling when this occurred. Whereas bonds used to be the rule of thumb for the safe side, they could be a riskier investment now due to an environment that favors rising interest rates.
With a proper plan in place, people can work toward retiring on schedule, regardless of the market volatility of the time. No matter the national economy, a good retirement strategy can help those who wait and do what’s prudent.
Dan Dunkin contributed to this article.
Fee based financial planning and investment advisory services are offered through ASG Investment Management, LLC., a Registered Investment Advisory Firm. (Registration does not imply a certain level of skill or training). Insurance products and services are offered through Accurate Solutions Group, LLC. ASG Investment Management LLC and Accurate Solutions Group LLC are affiliated companies.
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