What is the right path to get there?
After 8 years of positive market returns and increased uncertainty in politics, should you be more worried about market fluctuation risk? Is it “different this time” and should you be more conservative as an investor? It is common to feel nervous and have questions questions at this point in a market cycle and when the Oval Office has changed hands.
It may make sense to make a change if you don’t have a plan. If your asset allocation has much more in stocks than your goal demands, you are taking more risk than necessary. If your investment structure isn’t the right stick/bond mix for your life stage or time horizon, or if you only think about returns without considering volatility risk, or you are taking on a lot inflation (i.e. purchasing power) risk by being overly allocated to bonds vs. what is necessary for your goals, you may be or become off-track vs. your goals.
On the other hand, it is likely best not to make portfolio changes if you are following a well-built plan, you are saving enough, and your objectives haven’t changed.
Good plans and portfolios expect and are designed to make it through market fluctuations, while using strategies to dampen that volatility, such as the following:
• Choosing a portfolio that doesn’t take excessive risk relative to what is needed to accomplish your goal.
• A “defensive” bias by leaning towards “high quality” oriented mutual funds inside investment portfolios, on average, to reduce volatility relative to the broader markets.
• Use of short-term bonds, in portfolios that include bonds, to help offset certain bond market risks.
Does not making major changes mean nothing is being done? No, because well-run portfolios involve regular adjustments under the hood on your behalf to help keep you on track:
• Rebalancing, to control risk by cutting back a portion of asset classes that have over-grown, and reinvesting the proceeds in asset classes that may be undervalued.
• Adjusting mutual fund holdings or ETF’s as appropriate, and improving diversification periodically, for better risk controls.
• Selection of High Yield bond funds that avoid the riskier “junk bonds.”
All of this, combined with you updating and reviewing your goals and saving through WealthStep’s advice tools, will help you achieve your goal.
It is normal to occasionally feel concern about the markets. However, abandoning your plan due to near-term, temporary fears is like giving away your car after running low on gas or experiencing a flat tire.
To stay on track, accept that occasional discomfort is a natural part of the process, and stay focused on saving and investing in a way that fits your goals and life-stage. Use WealthStep’s advice center to help you.