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Healthy Check-Ups Extend to Retirement Portfolio

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February 29, 2016

Just like your annual well-visit to the doctor, it’s smart to also schedule a yearly check-up for your retirement portfolio. If conditions change, such as marriage, divorce, having a baby, or even scoring a raise at work, you should be checking in more regularly to align with your goals and help keep your portfolio on track.

But, just like folks who call on Dr. Internet at every mysterious ache, it’s true that you can bring on undue stress if your portfolio check-ins turn obsessive. There’s a balance between checking on your retirement portfolio too little and too much.

"There is no need to check your portfolio compulsively, even during times when the markets are rocky. Doing so can only cause anxiety and you may react emotionally," says Dara Luber, senior manager, retirement, at TD Ameritrade.

Emotional investing can lead to mistakes, including making changes that try to time the market instead of staying focused on the longer-term plan. "If you have a well-thought-out plan, market unpredictability shouldn’t typically cause concern and keep you up at night—even during market downturns," says Luber.

It’s important to review your goals and portfolio at least once a year, says Luber, checking to make sure they’re still in line with your risk tolerance, time horizon, and short- and long-term objectives.

Here's a guide to help you schedule your check-up:

Set up an automatic savings plan for regular contributions. "Contribute regularly to a retirement account—even if it’s just a few dollars every month. And it’s never too late to start. Having the money automatically deducted from your account each month takes away the guesswork of trying to time the market and stay focused on the long-term goal of arriving in retirement prepared," says Luber. If you get a raise, consider saving the extra income before you get used to spending it.

Revisit your goals and insure you have a plan in place. “Review your portfolio at least once a year to insure your allocations still align with your needs. There are tools such as TD Ameritrade’s Portfolio Planner that can help you determine your target allocation and how close you may be to hitting that target,” says Luber.

Rebalance your stock and bond allocations. You may need to rebalance if stock and bond allocations have shifted because of market movements. Let's say you have a baseline portfolio allocation of 60% stocks and 40% bonds. If the stock market made a big move higher since you last checked your portfolio, you may now see a 65% stock and 35% bond allocation. Rebalancing can bring you back to your baseline allocation target. For instance, it can be as simple as selling 5% of your stock allocation and buying 5% of your bond allocation to bring you back to your 60/40 goal.

Review your risk level and explore income options. "Pre-retirees or retirees who are more nervous about down markets may not want to take as much risk with their investments and may be ready to explore moving some of their allocation from equities to income oriented investment, “says Luber.

Stay the course and use discipline. Stay invested and keep working toward your goals in both up and down markets. "To get the benefits of dollar-cost averaging, continue to invest. Investors who exit the equity markets frequently due to the swings could erode investment performance over the long-term," says Luber.

Get more helpful information on Retirement Planning.