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Long Time Horizon: Is It Ever OK to Ignore Your Retirement Portfolio?

August 16, 2017
Long horizon and your retirement portfolio: Is it ever all right to ignore it?
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Our lives are busy. There are children to feed and educate, bills to pay, bathrooms to clean, lawns to mow, TV programs to watch, social media sites to peruse and update. Oh, yes, and retirement investment portfolios to mind.

Can we drop that last one every once in a while to better focus on the others? The answer might be surprising: Yes, you can, especially if you’re young with a long time horizon ahead of you, new to investing, and a little jumpy about how much risk you’re willing to tolerate. But—no surprise here—there are caveats.

Stay the Diversified Course

Many financial professionals will say that diversification is key to constructing a portfolio that can weather some of the market tumult that comes its way. Diversification doesn’t just mean having, for example, 60% stocks to 40% fixed income assets like bonds. It also might include varying the types of assets within each class.

Equities, for example, might include a mix of large-cap stocks with mid- and small-caps. They might be mostly domestic, with a handful of international stocks, growth stocks, and value stocks. Mid- and small-cap stocks are likely to be more volatile, as are value stocks compared with growth stocks. Bonds might include corporate as well as government. If the mix is diversified, the yin and yang of the blend might help keep a portfolio from suffering sudden losses in value when one stock, or industry, sector, or even an entire market like the bond or stock market, makes a downturn. 

When you’re young, with 40 or more years of investing adventures ahead of you, it might be easier to follow the set-it-and-let-it-go technique for a little while. “When folks start accumulating assets in their 401(k)s or other retirement accounts, they’re essentially saving for decades until they’re likely to access it,” says Robert Siuty, a senior financial consultant for TD Ameritrade. “By and large, the majority of the time, they will have a portfolio with more of a growth aspect, and that’s OK.”

If It Ain’t Broke, Consider an Occasional Fix Anyway

You will, however, want to take periodic checks to make sure your portfolio is still matching your goals. Even if the stock market has been on a consistent upward trajectory for some time, and your account value continues to go up, that doesn’t mean you should ignore it entirely. It’s possible your stocks-to-bonds ratio has changed. That’s not a directive to move out of your growth goals; it just means you’ll want to consider the mix and whether your portfolio is still matching your retirement objectives.

“The rule of thumb is to pull the reins back when things are going well by rebalancing. Look at trimming back some of your exposure in some asset classes that have done very well,” Siuty says. “That doesn’t mean you’re selling out of the position entirely; you’re just trimming it.”

Siuty also recommends keeping your cool during market pullbacks. “When you’re investing for 30-plus years, you shouldn’t panic at every kind of market downturn,” Siuty says. “You could even see a modest market downturn as a good thing, because you’re able to buy into these various asset classes at lower prices with the thought that over the long haul the market should be higher than it is today.”

But as you age and your life moves into different phases, you might want to pay closer attention to your portfolio. That’s not to say you should jump at every hiccup; only that you need to keep tabs on where you’re going.

“It becomes vitally important to make sure the risk profile is in alignment with one’s goals and objectives the closer and closer you get to retirement,” Siuty says. 

Because, let’s face it, a downturn is inevitable. But it shouldn’t blow up your retirement plan completely.

Retirement Planning

Regardless of your age, saving for retirement should typically be a priority in your overall financial plan. How much do you need to save to reach your retirement savings goal?

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