After seeing disappointing returns on retirement accounts and the stock and bond market slump in 2022, many investors are turning to their financial advisors and asking, “What should I do now?”
It may sound counterintuitive to some, but the short answer is to stay on course or make small adjustments. We help oversee 2,300 financial advisors. I consulted Dave Kloster of Thrive Financial.Jon Foster Senior Advisor and Investment Strategist
For more information, please contact your JNBA Financial Advisor. Here’s their answer, edited for space and clarity:
Q: What advice would you give to middle-class people who are worried about retirement?
A: Despite negative returns in both the broader equity and bond markets in 2022, “Thrivent hopes investors will stay on course, take a longer-term approach, panic or drastically change their plans. We recommend avoiding the urge to change to,” Kloster said. “For example, leaving the stock market now may lock in losses, but continuing to invest may allow them to recover over time. It shows that it will continue to play a role.”
Q: How do financial plans guide investors through their emotional ups and downs?
A: The plan put together by the client and advisor should act as an anchor.
“When people understand the purpose behind an investment, it is easier for them to maintain their outlook and resist the temptation to react to short-term market movements,” Kloster said. “Making large adjustments in light of market conditions can be a mistake that can actually worsen investment performance over time.”
Q: What about the “rebalancing” of stock and bond portfolios, including mutual funds?
A: Rebalancing bonuses involve selling things that went up and buying things that went down, Foster said. For example, sell stocks and buy more bonds, or vice versa, buy the ones that went down, depending on which class went up or down. But stocks and bonds have generally fallen this year, and investors should look deeper into their portfolios to reap the rebalancing bonuses.
Foster advises looking at holdings to make style-level changes and sector-level changes.
“Value stocks are down low single digits this year, and growth stocks are down 30%,” Foster said, adding, “There’s a big difference between the Dow and the Nasdaq. can be obtained.”
Alternatively, you can drop the rebalancing down to the sector level. “Energy is up almost 60% and consumer cycle companies like Target are down … 35%,” said Foster.
Q: How often should investors readjust or evaluate their goals?
A: “Quarterly or half-yearly would probably be preferable,” says Foster.
Foster suggests investors should periodically reassess their long-term goals and risk tolerance. A new long-term goal or event, such as a major change in income, starting a family, planning a home purchase, or putting retirement on hold, is a good time to make these reassessments.
Investors with longer time horizons, i.e. under 50 years of age, have 80% equities (which are usually riskier but offer greater return opportunities) to 20% government, municipal or Corporate bonds (usually lower risk, but lower return). But as investors approach retirement and milestones, they can mitigate risk by moving to a 60/40 stock and bond portfolio.
Q: With interest rates rising, what about the investment opportunity in fixed income securities?
A: “Some people might say they’re happy with a 4% or 5% return on bonds,” Mr. Foster said. “I have a chance to make money with bonds for the first time in a long time.”
why? Interest rates will be higher. Over the past few years, they have been below stock market yields, which has allowed us to make more money in stocks than in bonds.
Foster suggests government bonds, investment-grade corporate bonds, and mortgage-backed funds.
Q: Rebalancing back to your asset allocation plan, regular buying and selling change over time, right?
A: “Generally speaking, as age and time horizons shrink, they’ll become more conservative,” Kloster said. [retirement] How much money you need and when. This can be done at least annually through asset allocation targets.
“Rebalancing helps sell the winners,” he said. “Annual rebalancing is fairly low risk [year-over-year asset shift]Also, there are no tax implications on tax deferred retirement accounts that may occur on taxable accounts.discipline will get you back [asset-allocation] Goal. “
Q: Most young savers who take decades to invest invest only in 401(k) or similar plans, and their options are generally limited to mutual funds. How should they view their portfolio?
A: “They should have large-cap, small-cap, and international equity funds, as well as the right amount of bond funds based on their appetite for risk and time horizon. It has the above advantage, but it really isn’t.