Greetings! I hope this finds you well and enjoying life.

In light of the recent activity in the market involving the sell off and recovery, I felt that the following information on retirement portfolio maintenance might be in order.

Have you checked your retirement plan lately? It’s generally a good idea to review your retirement savings plan at least once each year and when major life changes occur. If you haven’t given your plan a thorough review within the last 12 months, now may be a good time to do so.

Since your last retirement plan review, have you experienced any major life changes? For example, did you get married or divorced, buy or sell a house, have a baby, or send a child to college? Perhaps you or your spouse changed jobs, received a promotion, or left the workforce entirely. Has someone in your family experienced a change in health? Or maybe you inherited a sum of money that has had a material impact on your net worth. Any of these situations can affect both your current and future financial situation and should be considered as you review your retirement savings objectives. In addition, your annual review is a good time to examine the beneficiary designations on your plan account to make sure they reflect your current wishes. This is particularly true if your marital situation has changed. With most forms of retirement accounts, your spouse is automatically your plan beneficiary unless he or she waives that right in writing. Say, for example, you remarried and you would like your children to remain as primary beneficiaries of your retirement account. In that case, your spouse would need to waive his or her right to the assets in writing.

After you consider any life changes, you may want to take another look at your future and evaluate whether your anticipated retirement income needs have changed. Have your goals and objectives for retirement changed? And if so, will those changes affect how much money you will need to live on? Maybe you’ve reconsidered plans to relocate or travel extensively, or now plan to start a business or work part-time during retirement. Or maybe your health or your spouse’s health has changed and you need to adjust your estimates for health-care costs down the road. All of these factors can affect your retirement income needs, which in turn affects how much you need to save and how you invest today. Double-check your total accumulation goal and determine whether you will need to adjust your savings or investment plan to strive for different amounts.

In any long-term investment plan, you can generally expect that there will be times of uncertainty that will cause you to question your investment decisions. Following periods of prolonged increases in the markets, it’s not unusual to experience corrections or even bear markets. When you hear media reports about stock market volatility such as we have of late, is your immediate reaction to consider selling some or all of the stock investments in your plan account? If that’s the case, you might want to revisit your risk tolerance. Risk tolerance refers to how well you can ride out fluctuations in the value of your investments while pursuing your long-term goals. An assessment of your risk tolerance considers, among other factors your investment time horizon, your accumulation goal, and assets you may have outside of your plan. If your time horizon is decades or you have a lot of assets outside of your retirement accounts, your investment risk tolerance might be higher than someone who is less than 10 years from retirement or has little other savings.

There are many tools available to help you evaluate your risk tolerance. These are typically questionnaires that ask about your personal financial situation and your opinions on various investing scenarios. After answering the questions, you will likely be assigned a risk-tolerance ranking such as conservative, moderate, or aggressive. In addition, suggested asset allocations are often provided for consideration.

Is your asset allocation still on track? Once you have assessed your current situation related to life changes, retirement income needs, and your risk tolerance, a good next step is to revisit your asset allocation. Is your investment mix still appropriate? Should you aim for a higher or lower percentage of aggressive investments, such as stocks? For example, if you’ve determined that you will probably need to accumulate more than you originally estimated, you can strive for this new goal by increasing your contribution dollars, striving for a higher return, or both. To strive for a higher return, you might consider investing a larger portion of your money in stocks. Alternatively, if you determined that you do indeed have a hard time sleeping at night when the stock market is volatile, you may want to consider investing a larger portion of your portfolio in less risky asset classes, such as bonds and cash.

To take this examination one step further, maybe you’ve concluded through your review that your original asset allocation is still appropriate for your needs, but your portfolio has strayed off track due to market performance. In this case, there are two ways to “rebalance” your portfolio. The quickest way is to sell investments in which you are overweighted and invest the proceeds in underweighted assets until you hit your target. For example, if your target allocation is 75% stocks, 20% bonds, and 5% cash but your current allocation is 80% stocks, 15% bonds, and 5% cash, then you’d likely sell some stock investments and invest the proceeds in bonds. Another way to rebalance is to direct new investments into the underweighted asset classes until the target is achieved. Using the example above, you would direct new contribution dollars into bond investments until you reach your 75/20/5 target allocation. Then you would adjust your allocation for future contributions back to that original allocation. This process may take a little longer, helping you ease back to your original target, but the same result will be achieved.

If you have questions about the above or feel that we can help in any way don’t hesitate to contact us.

Best regards,

Jeff Christian CFP, CRPC

 

To love oneself is the beginning of a lifelong romance.

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