As
you approach retirement, it may be time to pay more attention to investment
risk.
If you are an experienced investor, you
have probably fine-tuned your portfolio through the years in response to market
cycles or in pursuit of a better return. As you approach or enter retirement,
is another adjustment necessary?
Some investors may think they can approach
retirement without looking at their portfolios. Their investment allocations may
be little changed from what they were 10 or 15 years ago. Because of that inattention
(and this long bull market), their invested assets may be exposed to more risk
than they would like.
Rebalancing
your portfolio with your time horizon in mind is only practical. Consider the nature of
equity investments: they lose or gain value according to the market climate,
which at times may be fear driven. The larger your equities position, the
larger your losses could be in a bear market or market disruption. If this kind of calamity happens when you are newly
retired or two or three years away from retiring, your portfolio could be hit
hard if you are holding too much stock. What if it takes you several years to
recoup your losses? Would those losses force you to compromise your retirement
dreams?
As certain asset classes outperform
others over time, a portfolio can veer off course. The asset classes achieving the better returns come to
represent a greater percentage of the portfolio assets. The intended asset
allocations are thrown out of alignment.1
Just how much of your portfolio is held in equities today? Could the
amount be 70%, 75%, 80%? It might be, given the way stocks have performed in
this decade. As a StreetAuthority comparison notes, a hypothetical portfolio
weighted 50/50 in equities and fixed-income investments at the end of February
2009 would have been weighted 74/26 in favor of stocks by the end of February
2018.1
Ideally, you reduce your risk exposure
with time. With that objective in
mind, you regularly rebalance your portfolio to maintain or revise its
allocations. You also may want to apportion your portfolio, so that you have
some cash for distributions once you are retired.
Rebalancing could be a good idea for
other reasons. Perhaps you want to
try and stay away from market sectors that seem overvalued. Or, perhaps you
want to find opportunities. Maybe an asset class or sector is doing well and is
underrepresented in your investment mix. Alternately, you may want to revise
your portfolio in view of income or capital gains taxes.
Rebalancing is not about chasing the
return, but reducing volatility. The
goal is to manage risk exposure, and with less risk, there may be less
potential for a great return. When you reach a certain age, though, “playing
defense” with your invested assets becomes a priority.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - nasdaq.com/article/how-to-prepare-your-income-portfolio-for-volatility-cm939499
[3/26/18]
05112018-WR-2491