Typically, investors receive the same admonishment any time markets perform poorly: don’t abandon ship! You should take this advice with a pinch of salt. Properly, investing your resources depends on your age and financial goals.
In the light of recent market turbulence, now is the right time to think about your investments. Why is it important to do so? Stocks have had a rocky second quarter. In the past week, news about new tariffs and technology sector distresses have affected the stability of the Dow. Early last week, Empower Retirement, a company that processes over $530 billion of retirement assets, had a10% increase in the volume of calling it receives. Likewise, Fidelity Investments, with a portfolio of 15 million retirement plans also experienced the same during February. But what does that portend? It means that investors are looking for assurance that their investments are safe. This is why it is important that you evaluate the soundness of your investment decision. Use the following point to help you do so.
Assess you Asset Allocation
Consider the amount of money you have invested in your retirement plan. Make sure that you allocate 70% of funds to equity and 30% to bonds. A retirement plan with over 70% in stocks is typically considered aggressive. And a plan with less than 70% being highly susceptible to market variations.
You should determine your ideal fund distribution based on when you are going to retire. If you are about to retire, you shouldn’t take on more risk. But if you are a long way from retirement, you shouldn’t be concerned about market fluctuations. Use online tools available from your 401(k) plan provider or third-party providers to assess your retirement scheme.
Consider Target Date Funds
These are funds that let you select your investment instrument based on your retirement date. With this instrument, investment decisions are made by fund managers with gradual adjustment over time. Target date funds are safer as they rely on investment professionals for making investment decisions. As a result, this protects you from making investment decisions based on emotions.
Even so, be cautious when picking a retirement date and its associated target fund. Target date funds assume that you will retire at the age of 65. Nowadays, most investors only claim Social Security when they are 67 or 68 years of age. As a result, you might consider vintage funds as your investment vehicle as it gives you more time for claiming Social Security. For those in a 2050 fund, they might consider moving the retirement date to 2055.
Monitor Your Investment Portfolio
Avoid combining a 401(k) and a target date fund in your portfolio as this is most risky as well as impacting your retirement plan. You can avoid this by being extremely watchful of your investment; it nonetheless limits your investment options. Maintaining this level of control on your investment requires personal supervision instead of professional supervision.
Though you can build an investment on your own, it is hazardous doing so. Why? As you will incur unnecessary fees and overlapping investment options that can burn your investment plan. If this sounds intimidating, then a target date fund is your best option.
A common investment mistake is a failure to rebalance your portfolio. Let’s say you let a 60% stock allocation increase to 75%. In the event of a recession, your investment will most likely suffer substantially. What can you do to prevent this? Reallocate any growth from stocks into other investment instruments. Annually, rebalance your portfolio. Use your birthday or any other key anniversary to help you remember.
Portfolio rebalancing is most important if you are nearing your retirement date. But this time you should do it on a quarterly basis. Combine rebalancing, dollar averaging, or fixed interest investments to ensure you attain long-term success.