Five Ways to Protect your Retirement Now
Like most investors one of your top goals has been to enjoy a financially secure retirement at whatever age you choose. So, it stands to reason that your retirement nest egg should ideally generate above market returns with below market risk.
Above all else, it should be well protected in times of disarray, too.
We want to be able to maintain a comfortable, long-lasting lifestyle without the concern that one day our money will be gone. We also don’t want to outlive our retirement savings. That’s the worst thing we can do.
It’s why one of the top questions many analysts receive today is – how do I protect my money if the market were to fall apart? It’s a reasonable question. The last thing you want to do is run smack into a bear market just as you begin to pull your retirement savings.
Realistically, we have to consider that markets are clearly over-extended at this point. Our current bull market is now eight years old. Only one rally in history lasted longer – the one that ran from 1987 to March 2000 (582% gain) before entering an incredible bear market that cut stocks in half.
Add to this the fact that markets aren’t cheap, and the idea the U.S. economy isn’t as strong as many would have hoped and it’s only logical to assume there may be some bumps in the road ahead. But there are ways to protect your money.
Rule No. 1 - Relax
We don’t see anything happening like the 2008 crisis that sent the Dow Jones to 6,500 on the heels of the subprime crisis. Don’t look at an increase in market risk as a reason to cut back on your exposure to stocks altogether.
Rule No. 2 – Consider Rebalancing
During the last recession, a portfolio divided with 80% stock and 20% index funds plummeted 40%. That’s compared with a 20% drop for a portfolio that was balanced with 40% stocks and 60% bonds, according to USA Today. This is actually considered one of the best things you can do to avoid getting incredibly burned by the next market drop just as you’re about to retire.
With markets greatly overvalued, it’s particularly appropriate right now to do so. After the roller coaster rides the markets have taken us on, it wouldn’t shock me if your accounts are out of balance, deserving some desperate attention. Check it at least once a year.
Those planning to retire in the next couple of years should ideally check it more often.
Rule No. 3—Diversify
Depending on your risk tolerance and current age, it’s a good idea to temper your risk with bond funds and cash positions. The last thing you want to do is stuff all your cash under your mattress until they sound the all clear. It’s important that you keep at least some of your savings in the market to take full advantage of the historic gains. Stocks, bonds, cash, real estate, precious metals and perhaps some alternative investments should ensure that you’re diversified well enough to weather any market storm.
Rule No. 4 – Keep your Emotions in Check
It’s essential that you remember to protect your retirement principal. If you foresee a hiccup in the market it’s not time to gamble with your investments and make drastic changes on a whim. It’s also essential that you work with a good investment advisor at every step if you really are concerned and can’t handle the pressures of a volatile market.
Keep your cool, don't panic and work with an adviser who can guide you towards rational investment decisions, no matter what the market may do.
Rule No. 5 - Invest Your Age
Even in a volatile market, your investment mix depends on your goals. Advisors say you should have a plan that reflects your time horizon, and your risk tolerance.
For example, if you’re in your 20s and early 30s, an aggressive growth portfolio could be balanced with 85% stocks and 15% in bonds. For those in the 30s, 40s and 50s, a balanced portfolio could include 70% stocks, 25% bonds, and 5% short-term investments, notes CNBC.
If you’re nearing retirement or newly retired, a balanced portfolio could include 50% bonds, 40% bonds, and 10% short-term investments. For retirees, its suggested that you have 50% in bonds, 30% in short-term investments and 20% in stocks.
The best thing you can do in a volatile market is to remain relaxed.
Again, we don’t expect a sizable sell-off as we did in 2008. But if you have a great deal of concern, check in with your advisor for even more tips.