Fiddling with your Retirement Accounts

By: Brandon Harvey, Founder / Family Wealth Advisor, Legacy Wealth Management Group

As part of my blog series, I’ve decided that I will write a blog every time I have more than one client or contact ask me the same question. With the recent market “correction”, here is the headline topic of the month: What should I do to my retirement portfolio when there is a market decline? 

I received a text recently from a friend, somewhat freaking out. He said “I think I lost 10% of my 401(k) value over the last week. What should I do? I’m thinking about converting to cash and stopping my contributions while I wait for the volatility to blow over.” 

Not to knock my friend as his question is common, but it speaks to the core of most peoples’ behavior in rocky markets. To use the words of an old colleague of mine, “when it comes to investing, your emotions betray you.”

In my experience, more attention should be given to the portfolio during construction, as opposed to reaction. Here are a few points to consider when “constructing” your retirement portfolio:

·     An investor shouldfocus on time horizon to gain a sense of risk temperament. For example, if you are an investor with 10+ years until retirement, how much do short-term fluctuations actually matter? Now if we’re talking a year or two away, maybe these fluctuations could be highly detrimental.

·     If market fluctuations spawn unease in your life, create an allocation with your comfort level in mind. One thing to note—the comfort may come at a cost, so don’t be upset if you’re not meeting the performance of riskier allocations.

·     Continue contributing to retirement accounts through good times and bad. As much as it can play tricks on your thought processes, the continual contributions help to smooth out timing issues.

·     Create a scheduled time to adjust portfolio, and don’t touch it otherwise. For clients, I usually recommend revisiting portfolio allocations once per year.

This type of evaluation and planning does take some work to be sure, but taking action on it will help to quell the pit in your stomach when markets roll over, as they have of late. The key is to be more proactive instead of reactive, and that’s where emotional decision-making gets in the way. 

There are plenty of tools available online, or working with an advisor, to align your time horizon and risk temperament with your portfolio construction. 

Where do we go from here?This is part of a monthly blog series where I’ll be sharing insights and education from actual experience in working with clients. This blog is designed to reduce the complexity of managing your finances and provide transparency into how I work with you, my valued clients. I look forward to connecting with you here. Feel free to email me with your questions or comments at brandon.harvey@lpl.com.