If you’ve been monitoring your retirement savings over the last year, you might be suffering from whiplash from the constant ups and downs of the market. Assuming the responsibility of managing your retirement assets can be tricky. Should you pick a riskier portfolio, or one that’s pretty conservative? How much should you save? When was the last time you took a look at the contribution amounts you and your employer are making? When reviewing your current investments here are some more tips you should consider, regardless of what the market is doing:
Understand how much risk you are willing to take.
Sure, you are more than willing to accept the large returns that an aggressive portfolio may receive, but are you also comfortable with taking the large loss that an aggressive portfolio is bound to be hit with from time to time? Risk tolerance is a matter of how much you can lose and still meet your basic goals, while being able to sleep at night. Periodically perform a quick checkup by taking a risk quiz to determine your comfort level.
Asset allocation is the driving force behind what determines investment return. If you have a well-diversified portfolio, history shows your account balance will recover over time, along with the security markets. Well-diversified portfolios contain bonds and stocks (both domestic and international), as well as investments in large, medium, and small-sized companies. How you construct a well-diversified portfolio is based on your risk tolerance.
Don’t back out of the market completely.
If you feel the need to become more risk-averse, look to take one step down the risk ladder until you feel more confident with the stability of the markets. The alternative would be to sell all your equity assets and move to cash where you will probably remain long after the stock market recovery is underway. Backing out of the market completely would likely set you back when looking at your overall retirement savings.
Don’t panic, you are investing for the long-term.
Don’t let short-term emotions dictate how you invest your long-term assets. You should continually reassess your goals and carefully consider adjustments when appropriate. Remember you are not investing for today, but the future.
Avoid timing the market.
Timing the market will not improve investment results and is more likely to result in disappointing returns. Building a well-diversified portfolio and remaining disciplined with your asset allocation, gives you the best chance of maximizing your returns over the long-term.
Beware of chasing investment returns.
It’s tempting to move your account into funds that performed well over the last year or last quarter. Human nature is to chase investments that have recently done well; however, last year’s winners are no guarantee of this year’s winners.
Take advantage of catch-up contributions.
If you are age 50 or older, you can contribute additional amounts each year into your retirement plan, providing an opportunity to make up for lost time. As you get closer and closer to retirement there will be new items that you should start to consider.
Continue to save for retirement.
The main factor in how much you will have saved when it is time to retire is the amount you contribute. Continuing to save will soften the impact of market losses. And because of the losses, you may not only need to continue to save, but to increase your contribution, in order to stay on track with your retirement goals. In addition, by continuing to contribute, you will be taking advantage of stock market “sales” by buying additional equities at much lower prices.
WHAT’S YOUR NEXT STEP?
Anytime you’re considering major financial decisions, it’s important to work with someone that’s
on your side. Look for an advisor that is a full-time fiduciary. You can download Conrad Siegel’s
“Fiduciary Explained” eBook for a detailed look at what makes full time fiduciaries unique and a
step-by-step guide on how to find a fiduciary that makes sense for you.
About the author:
Michael Hoyle, CFP®
Mike is a CERTIFIED FINANCIAL PLANNER™ professional and serves as an Investment Consultant on Conrad Siegel’s wealth management team in Harrisburg. Mike brings a unique skill set to the firm’s investment team after working with Conrad Siegel’s actuarial sector on defined benefit pension plans for 5 years. Backed by his degree in Actuarial Science from Lebanon Valley College, Mike brings his analytical skills to the forefront of client relationships.
Outside of the office you might find him working on renovation and landscaping projects around his home. To relax, Mike enjoys hiking, skiing, beach vacations, and spending time with his family including his 1 year old son. You can learn more about Mike and the Conrad Siegel team at conradsiegeladvisors.com
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