Power saws sliced through the market on Tuesday following news that inflation rose 0.3% month-on-month and 3.1% year-on-year.
These measures exceeded economists' expectations, and markets fell in response. US stocks lost momentum against recent highs, with the S&P 500 (^GSPC) down 1.4% and the Nasdaq Composite (^IXIC) down 1.8%. Then calm prevailed, the market recovered, and stock prices rose. On Wednesday, the S&P 500 rose 0.96% and the Dow Jones Industrial Average (^DJI) rose 0.4%. And on Thursday, stocks rose again, pushing the S&P 500 to an all-time high.
It may have been just a blip, but the market could rebound again if inflation persists and prompts the Fed to hold off on cutting rates further.
So what?
I spoke with several experts about whether it's best to stick with the status quo or consider adjusting your retirement stock holdings.
read more: Planning for Retirement: A Step-by-Step Guide
focus on the long term
Last year was pretty good for many Americans' retirement savings account balances, with the S&P 500 up 26.29% and the Dow Jones Industrial Average up 13.7%.
So please forgive me if this week you feel scared and unsure of what to do.
“There's a fine line between how investors should respond to volatility,” Kristin Benz, director of personal finance at Morningstar, told Yahoo Finance. “On the one hand, they should mainly adjust it and not be reactive. But on the other hand, they should be complacent, especially given that stock performance has been exceptionally strong for most of the past 15 years. It's easy to get lost.”
Benz said that for investors who own stocks, the contents of their portfolios are changing, even if they aren't actively adding stocks. For example, he said a portfolio that was 60% stocks and 40% bonds in 2019 would have been 70% stocks and 30% bonds by the end of 2023, simply because the value of stocks has increased so much. .
“Meanwhile, bond and cash yields have improved significantly and the earnings outlook has improved,” Benz added. “And we're all five years older, and many retirees want a more conservative asset mix as they get older.”
So retirees, especially those who haven't reviewed their asset allocation in a while, should consider doing so, Benz said.
Financial advisors typically suggest rebalancing (i.e., adjusting the mix of stocks and bonds) if your portfolio deviates more than 7% to 10% from the original asset allocation that was built to suit your risk tolerance and goals. To do. To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So a 60 year old would have 50% of his money in stocks and the rest in bonds and cash.
But if you're itching to do something big, tread carefully.
“Timing the market is very difficult,” says Margherita M. Chen, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, on Yahoo told Finance. She said: “You may know when to get out of the market, but you may not know when to get back in. It's very difficult to be right twice.”
If you automatically put money away in an employer-sponsored retirement plan, or have automatic contributions to a Roth IRA or traditional IRA, and you're years away from retirement, give yourself a break.
“You're always investing when the market is high or low, which means that whether the market goes up or down, the performance of your investments will be even over the long term,” Chen said. .
If you have a target date fund or a static asset allocation fund (funds considered conservative, intermediate or growth), your fund manager will adjust and rebalance your portfolio for you, Chen added. . These portfolios are tied to an estimated retirement year (such as 2055 or his 2060), so they automatically rebalance and become more conservative as the years go by.
The bigger question is not what happened this week, but what happened last year. With the sharp rise in stock prices over the last year, your portfolio may no longer be a good fit in terms of diversification with a balance of cash, stocks, bonds, or stock and bond funds.
Time for annual health checkup
The first quarter is a great time to think about financials and portfolio rebalancing, Chen said.
“We're not going to sell everything. We're just going to cut back so that our 60/40 portfolio doesn't become 65/35 or 67/33,” she said. “Rebalancing your portfolio makes it easier to adjust your risk. This means assuming appropriate levels of risk tolerance and tolerance.”
For example, if you're on the verge of retirement and you're worried about a big market decline, you might want to rebalance your retirement portfolio to conserve cash and move away some assets. It might be a good time to profit from it. High stock price. This can serve as a safety net during the first few years of retirement. If the market goes down, you won't have to sell stocks at a loss to cover your living expenses.
“Stocks have market risks, but long-term investors will want to continue investing in stocks,” Chen said. “By the way, everyone is a long-term investor, even those who retire today.”
Bonds should also be included there.
Current high interest rates on fixed income investments mean it's a good time to move some of your assets from high-risk stocks to lower-risk fixed income investments such as Treasury bills and CDs, says LendingTree. said Ken Toomin, senior industry analyst. The founder of DepositAccounts.com told Yahoo Finance. These yields have declined slightly in recent months, but are still high compared to a year ago.
“While inflation and economic conditions make it difficult for the Fed to cut rates anytime soon, Treasury bills and bank CDs continue to offer higher yields than seen in more than a decade,” Tumin said. It should be,'' he said.
In fact, some certificates of deposit and high-yield savings accounts pay more than 5% interest. The most attractive CD rates are mainly offered by online banks, but these days he hovers above 5.5% for a one-year certificate.
There may also be some appeal in long-term bond yields, as the Fed is likely to delay further rate cuts.
“The bottom line is, before interest rates start to fall and bond prices start to rise, is there a chance?” said Lisa AK Kirchenbauer, founder of Omega Wealth Management in Arlington, Va., according to Yahoo Finance. told.
The message from all of these advisors is clear. “Don't act rashly, but your retirement accounts may need a little tweaking.” There's no harm in checking it out.
Kelly Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 of her books, including “The World's Best.''Taking Control Even Over 50: How to Succeed in the New World of Work.” and “You’re never too old to get rich.” Follow her on X @Kellyhannon.
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