Your Investing Strategy Needs a Check-Up

It’s always a good idea to make important decisions from a position of strength, when your mind is clear and calm. And right now the stock market is delivering on that. As I write this in late September, the major stock indexes have hit all-time highs.

That’s of course great news for your retirement security. But when the market is so strong, it is an important time to check that you’re ready for the next downturn. Because we know that there are always periods when stocks lose value.

I am not suggesting a bear market is around the corner. My message is to always be looking forward and making sure that your current strategy supports your future goals. Simply telling yourself that what has always worked in the past is best for future-you may create undue stress for you in the coming years.

Here are two things to consider:

You Are Closer to Retirement.

When was the last time you carefully reviewed how much you have invested in stocks? Five years? Ten years? That puts you that much closer to retirement.

You know I am a big believer in stocks for the long term. They have historically delivered the best inflation-beating gains. But that means signing on for periods when stocks lose value as well.

The question to ask yourself is how much of your overall portfolio you want invested in stocks. And that may change as you age. For many people, as they near retirement, it can make sense to reduce their reliance on stocks if they want a smoother ride. This is an entirely personal decision based on your needs. But just because you had 80% or more invested in stocks when you were 40, doesn’t mean you need or must keep that much invested in stocks when you are 65 or 75.

Also, because stocks have had such a strong run lately, it’s likely you have more invested in stocks than you imagine. A strategy that aims to have 70% in stocks could likely have 75% or 80% or more in stocks right now if you haven’t been paying attention for a few years.

If you have a workplace retirement plan, it likely has free online tools to help you work through the right amount of stocks based on where you’re at today. The same is true for the discount brokerages where you have your IRAs and other savings accounts.

Money inside a workplace retirement plan or an IRA can be moved around without any tax bill. If you find you want to reduce the amount you have in stocks, it is easy and tax-free to exchange some shares of a stock fund (or ETF) for another investment.

High-quality bonds are a good option for money you want to move out of stocks.  I recommend you consider owning bonds with a maturity in the range of 3-7 years or so.

For those of you who are frequent listeners of my Women & Money podcast, you know I was recommending 20 and 30-year Treasuries a year ago when interest rates were even higher. As rates have started to come down, that has been a profitable strategy. But now that rates are a bit lower, I recommend focusing on the 3-7 year range. You still get paid a good interest rate, but with less risk than investing in longer-term bonds.  If your retirement money is in a workplace plan, look for a fund option in your plan that invests in “intermediate-term” bonds.

Bear Markets Can Feel Different in Retirement

If you are near retirement or are retired, you are an old pro at living through bear markets. But it can hit differently when you are retired and relying on income from your investments. It’s potentially more nerve-wracking. That’s just being human.

That’s an argument for re-reading what I just wrote about maybe recalibrating how much you have in stocks. But just as important is making a mental note right now that you will push yourself to think calmly and carefully when the next bear market hits.

And the surest way to stay calm is to make sure you are following my advice. I have long recommended that retirees have at least two years of living expenses in cash set aside, so you can ride out any market turmoil without having to dip into your stocks for a long time.

And then keep reminding yourself that stocks recover if you have patience. Fidelity analyzed the track record of workplace retirement accounts during the financial crisis. Those who stayed invested in stocks saw their portfolios gain nearly 150% in the decade after the worst of that harsh bear market. That was double the return of people who sold stocks during the worst of the 2008-2009 bear market.