Realigning for Recess: A Step-by-Step Guide to Rebalancing Your Portfolio for a Secure Retirement
Balance Is Key in Life
Balance is crucial in life, and it is equally crucial when it comes to financing your second act. Rebalancing your portfolio plays a vital role in securing your financial stability.
When to Rebalance
There are multiple reasons why people rebalance their portfolios, including age, desire to preserve wealth, and mitigating market volatility. For individuals approaching retirement, a combination of these factors plays a pivotal role. Rebalancing your portfolio involves adjusting your asset allocation, which consists of stocks, bonds, and other investments.
Rebalancing As You Approach Retirement
As you approach retirement, it becomes essential to rebalance your portfolio to ensure stability and security in your post-working years. According to Kelly Regan, vice president and financial planner at Girard, Univest Wealth Division, rebalancing should dictate life stages. You typically begin to get more conservative approximately a year away from retirement.
History Lesson on Rebalancing
In 2007, approximately 25% of 401(k) investors between 56 and 65 allocated more than 90% of their portfolio to stocks. When the Great Recession ensued, the S&P 500 lost nearly 51% by February 2009, which could be devastating for elderly investors.
Target-Date Funds
Some investors participate in self-directed portfolios, while others join target-date funds that automatically rebalance without the need for investors to get involved. It’s essential to remember that even for those involved in target-date funds, it’s recommendable to periodically monitor your asset allocation for awareness.
Portfolio Rebalancing Checklist
- Assets Allocation: Keep your asset mix in line with your long-term goals.
- Risk and Return Tolerance: Re-evaluate how much risk and return is acceptable for your specific situation.
Shift from Growth to Value
With time, your goals and focus should shift. According to Kelly Regan, transition from stocks that focus on share appreciation to investments that provide income.
Value and dividend-oriented stocks should be considered once you’re nearing retirement. These company stocks are not as costly and offer sustainable income due to their size, financial health, or industry.
Dividend-Equity Fund
Considering the dividend-based ETFs gives investors exposure to sectors and lowers risk. These types of stocks tend to recover faster because they’re related to recessions.
Cash Accounts
High-yield savings, money market, or cash-rich accounts can provide immediate accessability, ensuring emergency funds available. These low-risk avenues ensure your portfolio remains stable regardless of market fluctuations.
Rebalancing after Retirement
Once retired, it’s inevitable that your financial scenario will experience changes. Regular review of your situation will help identify and adjust course as needed. Review your budget periodically to determine asset allocation revisions.
Reinvest Required Minimum Distribution
