If you followed the market last week, you will know it took investors for a roller coaster ride. On Monday, the Dow Jones plunged 1,000 points, only to set a record high on Thursday, and finally closed out the week in green territory. And since approximately 55% of Americans have retirement accounts, according to the National Institute on Retirement Security, understanding what to do during these times is extremely important.
Last week, we saw many changes in the market. And for some it was just scary. If you are one that checks your retirement portfolio, you may have been left with fear or questioned whether you should continue to invest in the market or pull your money out.
Stick to your retirement goals
First, you have to understand your purpose. If you are investing in the market for retirement and it will be several years or more before you will need the money, then you should stay put and keep the money invested. Overtime, the average 10 year market returns are about 7%. And of course, we have seen market declines before, but the market continues to rebound in the long run – so simply stay put.
Make certain you are well diversified
The next thing to keep in mind is to make certain you are well diversified, meaning that you don’t have all of your eggs in one basket. And of course this will depend on your risk, but if you are a younger investor, you should consider investing in a portfolio that consists of a higher percentage of stocks and a smaller percentage of bonds. However, if you are moving towards retirement, it may be a good time to review your portfolio – to ensure you are not investing too aggressively, since you may need your money soon.
Speak with a financial advisor about your options to make certain you have a portfolio that considers not only your risk but your time horizon as well.
Rebalance if needed
For many investors, it may be a good time to look at their portfolio to consider whether it is time to rebalance it. For instance, if you decided that your portfolio will contain 70% stocks and 30% bonds, make certain that it still has the same asset allocation. In many cases, due to market changes, you may now have a different percentage allocation. So see whether you need to rebalance your portfolio to get it back to its original allocation.
Also, consider life funds or target-date funds offered by your retirement plan. These plans assign an asset allocation based on your expected retirement date and will automatically rebalance as time goes by.
Kemberley Washington is a certified public accountant, professor at Dillard University and author of The Ten Commandments to a Financial Healing. She provides personal financial literacy classes to groups. Contact her at firstname.lastname@example.org.