We are focusing on retirement planning – our last entry discussed some of the changes made to the governance of retirement accounts and distributions from them in the Setting Every Community Up for Retirement (SECURE) Act, and a few of the potential further changes in the House-passed Securing a Strong Retirement Act (SECURE 2.0).

Nonetheless, whatever the governance regarding the accounts, contributions, and disbursements, retirement planning is still essential.

But how do you handle your investments, retirement-dedicated and otherwise, in a market as volatile as today’s is? Do you sell your stocks and mutual funds in a down market? The S&P 500 is down approximately 20% year to date. Should you be buying bonds, if so what type and what maturities?

The most important thing is to stay calm. Panic is not in any investor’s best interests. Acting from emotion, rather than from a rational mindset, is potentially a bigger threat to a portfolio than market volatility.

It’s important, too, to note that, historically since 1945, stock market declines of 10% to 20% recover in an average of 4 months. Even true bear markets, with losses of 20% and above, take an average of only 25 months to recover. Those most adversely impacted by the 2008 financial crisis were the investors who rushed to unload their stocks and didn’t re-invest.

Perhaps, though, you are right in thinking your retirement portfolio, and possibly the investment of your current and near-future contributions to that portfolio, could use a little rebalancing.

One much-touted strategy, in any market, is the “Three Buckets” theory of investing, which places investments in three differing categories. These “buckets” represent:

• Cash and cash equivalents, such as money market funds. A general rule is that for those facing retirement in the near-term, having two to three years’ worth of your projected expenses in readily accessible cash and equivalents is likely to give you at least most of the buffer you are likely to need to avoid selling from the remaining “buckets.”
• Short- and intermediate-term bonds. These relatively stable investments would be what you replenish your cash with when it’s nearing exhaustion. If you are closing in on retirement, you may want to have approximately 5 to 10 years’ projected expenses in this “bucket.”
• Long-term stocks and bonds. These, which will represent the largest portion of your retirement assets, are the most prey to market volatility but also have potential for the greatest long-term returns. This is the last “bucket” you should dip into – ideally, these funds should not be tapped until you are about a decade into your retirement.

However, any strategy is only as good as its implementation will let it be – and it’s only as good as the fit it represents for you. Your long-term goals are your own, uniquely, as are your financial situation and your needs.

The best strategy is one which will involve your CPA/financial planner – s/he will be calm and reasonable and can help keep you focused on the real goal – a healthy and comfortable retirement, not an alarmed reaction to a present situation which, over less time than you might think, is most likely to correct itself.

Because if there’s one thing we do know in this life, it’s that the market can only go up or down, and it never continues in either direction forever. Nor will it this time.

Your financial planner can advise you on the best investment strategy to balance all your needs, in light of your individual situation, your projected retirement timeframe, your needs both future and current, your risk tolerance, and your goals.

If you are concerned about your retirement assets, please reach out to us. We can aid in setting your mind at rest with a well thought out plan.

Please click here to email us directly – we are here to help.

Until next time –

Peace,

Eric