The stock market can shock us when we least expect it. April 10th was no exception.
U.S. consumer prices were higher than expected in March, according to the latest data from the Bureau of Labor Statistics. The consumer price index increased by 0.4% from the previous month and at an annual rate of 3.5%, accelerating from February’s annual rate of increase of 3.2%.
This news shocked many investors who jumped on the “sell stocks” train. End of the day results: The Dow Jones Industrial Average (^DJI) was down 1.1% and the S&P 500 (^GSPC) was down nearly 1%.
The rush to sell stocks was driven by pressing concerns that inflation would pick up again and that the Federal Reserve might not cut U.S. interest rates as much as this year, or at all. U.S. stocks were jolted again on April 11 after another economic report, the Producer Price Index, reported a smaller-than-expected rise.
None of these things are within your control.
It may have been just a blip, but the market could rebound again if inflation persists and prompts the Fed to hold off on cutting rates further.
So what? I spoke with several experts about whether it’s best to stick with the status quo or consider adjusting your retirement stock holdings.
Here’s what to do with your retirement savings when markets are volatile.
focus on long-term goals
Last year was pretty good for many Americans’ retirement savings account balances, with the S&P 500 up 26.29% and the Dow Jones Industrial Average up 13.7%.
So if you’re scared of this week’s volatility and wondering what to do, don’t worry.
“There’s a fine line between how investors should respond to volatility,” Christine Benz, director of personal finance at Morningstar, told Yahoo Finance. “On the one hand, they should mainly adjust it and not be reactive. But on the other hand, they should be complacent, especially given that stock performance has been exceptionally strong for most of the past 15 years. It’s easy to get lost.”
Benz said that for investors who own stocks, the contents of their portfolios are changing, even if they aren’t actively adding stocks. For example, a portfolio that was 60% stocks and 40% bonds in 2019 would have been 70% stocks and 30% bonds by the end of 2023, simply because the value of stocks has increased so much, he said. .
“Meanwhile, bond and cash yields have improved significantly and the earnings outlook has improved,” Benz added. “And we’re all five years older, and many retirees want a more conservative asset mix as they get older.” So, especially retirees who haven’t reviewed their asset allocation in a while, Benz said a review should be considered.
Financial advisors typically recommend rebalancing (a combination of stocks and bonds) if your portfolio deviates by more than 7% to 10% from your original asset allocation (built for your time horizon, risk tolerance, and financial goals). adjustment). To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So a 60 year old would have 50% of his money in stocks and the rest in bonds and cash.
But if you’re itching to do something big, tread carefully.
“Timing the market is very difficult,” says Margherita M. Chen, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, on Yahoo told Finance. “You might not know when to go back. It’s very hard to be right twice.”
If you automatically put money away in an employer-sponsored retirement plan, or have automatic contributions to a Roth IRA or traditional IRA, and you’re years away from retirement, give yourself a break.
“We’re always investing when the market is high or low, which means that whether the market goes up or down, the performance of our investments will be even over the long term,” Chen said. .
If you have a target date fund or a static asset allocation fund (funds considered conservative, intermediate or growth), your fund manager will adjust and rebalance your portfolio for you, Chen added. . These portfolios are tied to an estimated retirement year (such as 2055 or his 2060), so they automatically rebalance and become more conservative as the years go by.
The bigger question is not what happened this week, but what happened last year. Last year’s stock market boom may mean your investment portfolio is no longer well-suited for diversification through cash, stocks, bonds, or a balance of stock and bond funds.
Time for annual health checkup
This is a good time to think about your financial plans and long-term goals. That could include a new look at rebalancing strategies, Chen said.
“I’m not going to sell everything, I’m just going to reduce it so that my 60/40 portfolio doesn’t become 65/35 or 67/33,” she said. It means assuming appropriate levels of risk tolerance and risk tolerance. ”
For example, if you’re on the verge of retirement and you’re worried about a big market decline, you might want to rebalance your retirement portfolio to conserve cash and move away some assets. It might be a good time to profit from it. High stock price. This can serve as a safety net during the first few years of retirement. If the market goes down, you won’t have to sell stocks at a loss to cover your living expenses.
“Stocks have market risks, but long-term investors will want to continue investing in stocks,” Chen said. “By the way, everyone is a long-term investor, even those who retire today.”
Bonds must also be included.
Current high interest rates on fixed income investments mean it’s a good time to move some of your assets from high-risk stocks to lower-risk fixed income investments such as Treasury bills and CDs, says a senior industry analyst at the firm. says Ken Toomin of List. the founder of LendingTree and his DepositAccounts.com told his Yahoo Finance. These yields have declined slightly in recent months, but are still high compared to a year ago.
“While inflation and economic conditions make it difficult for the Fed to cut rates anytime soon, Treasury bills and bank CDs continue to offer higher yields than seen in more than a decade,” Tumin said. It should be,” he said.
In fact, some certificates of deposit and high-yield savings accounts pay more than 5% interest. The most attractive CD rates are mainly offered by online banks, but these days he hovers above 5.5% for a one-year certificate.
There may also be some appeal in long-term bond yields, as the Fed is likely to delay further rate cuts.
“The bottom line is, before interest rates start to fall and bond prices start to rise, is there a chance?” Lisa AK Kirchenbauer, founder of Omega Wealth Management in Arlington, Virginia, told Yahoo Finance. Told.
The message from all of these advisors is clear. “Don’t act too hastily, but your retirement accounts may need a little tweaking.” There’s no harm in checking it out.
Kelly Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 of her books, including “The World’s Best.”Taking Control Even Over 50: How to Succeed in the New World of Work.” and “You’re never too old to get rich.” Follow her on X @Kellyhannon.
