3 Ways to Fix Your Retirement Account
So let’s say you are nearing retirement or are already retired and your nest egg has just been chopped in half because you were 100% invested in stocks. What do you do?
CNNMoney.com today offers three ideas (edited for length):
Stick with stocks. You could leave your portfolio the way it is on the theory that a near 100% stocks stake gives you your best shot at quickly recovering your losses. I think this approach is a non-starter, though, because it’s just too risky. Sure, you would be in a great position if stocks soar to big gains as they have coming out of past recessions. But we don’t know how long such a turnaround might take, and we could very well see even lower stock prices before we see higher ones. Which means you could end up in an even deeper hole at a more advanced age.
Play the waiting game. Another way to go would be to get out of stocks entirely and hunker down in stable value or money market funds. The idea is to preserve the account value you now have and then jump back into stocks when you’re confident that equities are on the road to a sustained recovery.
But, the problem with this course of action is that it’s virtually a mission impossible to know when to get back into stocks. What looks like a bona fide turnaround may be just another of the many false starts we’ve had.
Fix your mix. Your third option, and the one I recommend, is to revamp your retirement savings account so that it contains a blend of stocks, bonds and cash that is more appropriate for someone your age and proximity to retirement. Your goal is to set an asset mix that gives you enough long-term growth potential so your savings can carry you through a retirement that could easily last 30 or more years, yet at the same time prevents you from being totally decimated if stocks continue to slide.
The challenge, though, is getting this asset mix right.
Finding the right asset mix is very difficult indeed. It depends on your current income and your long term desired growth, amongst other factors. The article goes on to recommend either consulting with a “competent certified financial planner” or using an online retirement income calculator.
Finding a financial planner who can be trusted is yet another challenge. Perhaps you are already with a financial planner, which in that case you may need to find a new one. Recommended planners from friends can work but are also dangerous as well.
Bottom line just like individual stocks, investors should always due their due diligence before making any decision. Whether it be a crummy financial planner or investing in Bernie Madoff, trust is hard to come by now a days.
Source:
Ask the Expert: Retirement Losses: What Now?
Walter Updegrave, CNNMoney
Yahoo Finance, March 5th, 2009
Yes – it can be quite hard to fine the right financial planner. One way to help you feel good about your choice of planner and your ability to trust them is to have more than one conversation with your potential planner before you actually hire them. Make sure there is a ‘personality fit.’ Personality fit is often an over-looked factor. You want to make sure that you share the same basic philosophies with your planner. For example, if your planner is going to insist that you cut out your lattes each day, but you find them to be a $3 slice of heaven, you may not agree on larger issues either.
My situation is a little different. I went from 100% stocks to 100% money market in the summer of ‘07. I sat around for over a year wondering if I had made the right move, but the bet finally paid off for me.
It isn’t as hard as you make it sound to know when to decide to get back into the stock market. The way I explain it to my family is that we are simply waiting “for all the bad news to come out”, and we are nowhere near having all the bad news posted – the government itself says so.
Don’t listen to anybody who tells you that by sitting out of the market you might “miss the bottom” because that excludes you from the great gains once the recovery starts. The objective here isn’t to make gains, the objective is to preserve every bit of capital that you have.