Our busy lives leave little room to monitor the stock markets regularly. There are times when we can just ignore our retirement portfolios—for a little while.
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.
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.”
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.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.