When the market crashes virtually everyday during a correction, it’s hard not to watch your money evaporating as investments lose value. During market downturns, the perma-bears come out of the woodwork and do everything they can to scare you out of the market. They make it a “I told you so” moment by pointing to the deficit, political turmoil, geopolitical tension, interest rates, etc. etc. It’s important to remember there’s never a time when these things aren’t an issue in the global economy. Corrections and bear markets are the hardest times to keep focused on your long-term plan. But, your long-term plan is much more important than the daily, or hourly ups and downs of the stock market.
The question every media person seems to ask is, ‘should you be buying or selling right now? Ironically, this is precisely the question you shouldn’t be asking.
The question you should be asking is, ‘am I happy with my long-term retirement plan?’ If the answer is yes, than do nothing at all.
If your answer is ‘no’ or ‘I don’t know’, this is where the work is. Use this simple exercise to check in on your retirement plan. Draw a pie chart with the 3 components below:
Your growth component is your allocation to stocks in your retirement account. How much of your plan should you allocate to growth? This is a question of personal preference, risk tolerance and life stage, but an average, balanced portfolio would allocate around 50% to growth.
Your income component is your allocation to bonds, treasuries or anything that provides consistent income to your retirement plan. A good starting place is 25% but it can and should go higher if you are retired or have a low tolerance for risk and volatility.
Your protection component is made up of cash, annuities, and insurance. If combined you have planned on an allocation of 25%, check to make sure you are following the plan. If you feel like you want to add protection, remember this will lower the other areas.
A balanced retirement portfolio will be in the range of 50% Growth, 25% Income and 25% Protection but your specific plan will be based on your individual factors.
(Newsletter provided by Brockman Capital Management)