Why investors may need to step back and reexamine their portfolios and investment plans to ensure they remain appropriate for new circumstances.
Sometimes, life goes as planned. An investor chooses her long-term goals, follows her investing plan, and meets her objectives without having to change strategies over time.
But that isn’t always the case. Major life events such as a divorce or job loss can occur. Retirement timing can change. The markets could undergo a major hiccup. Some people even receive an unexpected inheritance. Changes such as these could mean it’s time to reassess existing financial plans.
Even if life goes according to plan and markets stay smooth—unlikely as that may be—investors might still need to revisit their goals every now and then. This could happen, for instance, when retirement is directly ahead and investment portfolio allocations may need adjustments to match changing life circumstances.
“Whether it’s an unanticipated wave of market volatility or simply the realization that retirement is fast approaching, there are times when investors need to assess their portfolio and make sure it’s still appropriate for their circumstances,” said Keith Denerstein, Director of Guidance Product Management at TD Ameritrade. “Even if you’re super-organized and diligent, your original objectives could change.”
Take the theoretical example of a long-term investor who’s successfully sent his kids through college, paid off his mortgage, and followed his financial plans. The temptation might be to sit back and relax, figuring he’s accomplished his goals and is on the right path to retirement.
That may well be the case. “Sometimes, it’s ‘stay the course,’” Denerstein said. “Or it may be time to talk to an investment consultant and discuss how the strategy has gone from saving for retirement to transferring into retirement—not about growing money, but making sure it lasts the remainder of the investor’s life and changing into income strategies from growth strategies.”
Markets can change quickly. Every investor who’s followed the market in recent years knows this well. Interest rate hikes come and go, volatility can spike based on sudden economic or policy changes, and sometimes an entire region experiences a financial crisis that affects the whole world economy, like the stock market crash in China last year.
At these times, investors may need to step back and take a look at their positioning. Sometimes, for instance, in periods of sudden volatility, it can be prudent to watch and wait. Other times, market events might actually make it necessary for some investors to change plans. Again, talking to an investment professional can help investors handle circumstances and not over- or underreact to market events and changes in personal circumstances.
“Talking to an expert and evaluating where your objectives were, where you stand now, and how it may play out in the near future and long term can help provide a big-picture approach,” Denerstein said.
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