The last few months have been a wild ride for investors. The stock market has seen volatility that we have not had in several years. This can often be worrisome for investors, but it can also represent an opportunity. As people near retirement and balances in 401(k)s and IRAs grow, these rough times can induce heartburn in even the most seasoned of investors.
At times like these it’s important to think about your overall strategy, and to remember a few key points. First, think about your overall asset allocation and how you arrived at the mix of investments you currently have. If your investment mix made sense six months ago, chances are that it still makes sense. On the other hand, market fluctuations do a great job of helping people realize if they are actually more conservative investors than they previously thought they were.
One thing I occasionally hear from investors as they near retirement is that they cannot afford fluctuations in their retirement portfolio because they are about to retire. While this may be true to a certain extent, consider this: a male and female couple, both aged 55, have a 50% chance of one of them living to age 91.6*. That’s a significant length of time in retirement, and being too conservative with your investments has the potential of being as detrimental as being too aggressive.
Remember that the market being down presents certain opportunities as well. If you have cash sitting on the sidelines, it may be a good time to invest. Are you worried that the market may go lower? Invest that cash over a period of a few months—this is the same concept as dollar cost averaging into your 401(k); you take the guesswork out of trying to invest at the market bottom. If the market continues lower, you are making additional purchases at a lower price. Also, if you have positions that you have been thinking about selling, a market dip may present an opportunity to realize a loss that helps on your taxes. Of course, consult your tax advisor when employing such a strategy.
If you’re concerned about how the recent market volatility is affecting your portfolio and your probability of a sound retirement, set up a meeting with your advisor. If we can help, contact us today for a no-obligation consultation.
*Male and female joint life expectancies based on Annuity 2000 Mortality Table.