Planning in Uncertain Times

Even those most prepared for retirement still cannot completely avoid an economic recession. However, there are ways to still feel financially empowered during a time of recession.

Here are some general considerations to help keep your financial plan on track in uncertain economic times.

  1. Stay in the market
    Investing in the stock market always comes with a measure of risk. In exchange, may be rewarded with higher returns than those you’d get from savings accounts, CDs and the like. But sometimes the market dips, and your portfolio takes a hit.

    So, should you get out when the market drops? Probably not, in most cases. People are living longer than they ever have before, so you need your money to last a long time. Understanding what assets you have that can help with inflation and enjoy the potential financial growth that can come from investing. A solid financial plan will account for the ups and downs of the market.
  2. Consider rebalancing
    Through your life, you’ll want a mix of riskier assets for growth and safer assets for stability. The closer you get to retirement, the less risky you usually want to be. In addition to setting your asset allocation (your mix of risky and safer assets) and changing it as you get closer to retirement, you should also rebalance regularly. A long run of positive stock market returns can actually leave you taking more risk than you should.

    Here’s why: Say you set your asset allocation at 80/20 (80 percent stocks and 20 percent safer assets like bonds). After years of growth in the stock market, your asset allocation could turn into 90/10 if your stocks grow faster than your bonds. When you rebalance, you sell some stocks and buy bonds to get back to 80/20. Then when the next downturn hits, the gains from the stocks you sold will be in those safer bonds.
  3. Guarantee at least part of your retirement income
    Utilizing guaranteed income sources, which are not impacted by market volatility, and accumulating a cash reserve can be smart ways to ride out a recession. Pensions, annuities and Social Security are examples of stable sources of retirement income. If you’re on the verge of retirement, consider keeping enough cash in a risk-free location — like a savings account — to cover a couple years’ worth of expenses.
  4. Diversify!
    The goal of diversification is to keep your portfolio healthy, regardless of what the market is doing. If the market does fluctuate, you may have a portion of your portfolio that will respond positively and may offset some of the negative impacts. So, make sure your portfolio includes a system of checks and balances. That means not only having a mix of stocks, bonds and cash in your portfolio, but also a mix of different groupings or sectors within each asset class.
  5. Work with an expert
    Facing an uncertain market — especially as you close in on retirement — comes with high stakes. A great advisor understands your financial goals and can guide you to options that truly fit your needs. After all, a strong financial plan can prepare you for the ups and downs of the market to allow you to weather a recession and focus on what’s really important: such as enjoying your retirement.

The opinions expressed are those of Jim Daffin as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Diversification does not assure profit or protect against loss.