When the stock market declines, it’s not unusual to see the value of your mutual funds* and retirement account balances shrink. A market downturn is particularly painful for people nearing retirement if they invested too aggressively. To help soften the blow when the stock market declines again -- because historically investment markets rise and fall -- you can take some steps to help ensure your asset allocation** is appropriate for your investment objectives, risk tolerance and time horizon.
Be aggressive
If you’re nearing retirement, taking an aggressive investment approach that includes an overreliance on stock mutual funds may not be the best strategy, but being aggressive in monitoring your investment portfolio makes sense at any age. Being aggressive doesn’t mean changing your investments constantly, but keeping an eye on your portfolio so you can make any necessary changes. This means keeping the right balance between aggressive and conservative investments, changing that mix if your goals or time horizon change and monitoring your mutual funds to identify if their style drifts.
Be automatic
If you aren’t the do-it-yourself type, you may want to consider buying shares of target date or lifecycle mutual funds. These funds usually have names followed by your expected date of retirement, such as 2015 and 2020 -- the approximate date when you expect to retire and begin withdrawing your money. Investment strategies vary by the target date. A 2030 target date fund, for instance, is typically more aggressive than a 2010 fund. The lure of target date funds is that the investment mix adjusts automatically as you age. It is important to remember that like other fund investments, the principal value of the fund(s) is not guaranteed at any time, including at the target date.
But not always
Automation may work against you if, for example, you are younger and were automatically defaulted by your retirement plan sponsor into your retirement plan with, say, 3% of your salary deferred into the most conservative investment option available in the plan. A minimum automatic contribution level will help get you started but will probably be too low to allow you to accumulate the amount of money needed to fund your retirement. You should monitor your account actively and make contribution and investment decisions based on your individual situation.
Uncomfortable? Keeping you awake at night? Stop in for a no obligation review of your investments. We’ll work with you to help keep you on track and offer our view as to whether or not your current plan will help you reach your goals!
* Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won’t guarantee future results. An investment in mutual funds may result in the loss of principal. Mutual funds involve risk and are offered by prospectus only, which you can get from your registered representative. Carefully consider investment objectives, risks, charges and expenses of the investment company before investing. The prospectus will include this and other information; read it carefully before investing. Investing involves risks and there is no guarantee that any one strategy protects against a loss in a declining market. You should consult with your financial professional regarding your particular situation.
** Asset allocation won’t guarantee a profit or ensure against a loss, but may help reduce risk and volatility in your portfolio.
FINRA Reference #FR2009-1013-0054/E.
Christopher A. Perme is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc. Member SIPC. Supervisory Office: 1660 W. 2nd Street # 850, Cleveland, OH 44113. 216-621-5680.
