Today’s volatile market and the up-to-20% losses this year make most investors a little uncomfortable—more so when the investors are within their 10-year window before retirement.
We’ve been working with investors who have been moving money into fixed-income investments for their upcoming retirement years and are concerned that they’ve watched their bond portfolio fall up to 10% this year. Of course, their equity portfolio hasn’t done any better. With the short-term outlook looking like much of the same volatility is ahead, these investors are wondering what they can do now—mid-year—to improve their situation.
The 10-year window before retirement is a very important time if you are following the Henssler Ten Year Rule; however, current market conditions are not a reason to change your overall plan. If your bonds are down 10%, you don’t need to worry about it as you are holding them to maturity. Assuming no defaults, you will get your money back and receive the coupon payments along the way.
For example: Last June, you purchased a $1,000 five-year Treasury at 0.90%. If you were to sell that bond today, it is worth much less than $1,000 since a new bond at that same price yields 3.38%. However, in June 2026, you will very likely get your initial investment of $1,000 back. Last year when markets were doing well, you would have planned for 2031 liquidity. Likewise, in 2020 when the markets recovered from the COVID crisis, you would have planned for liquidity needs in 2030.
While bonds are paying more than 3%, today is not a great time to be selling equity investments. Again, if you are following our Ten Year Rule, you should be planning your liquidity for 2032. If your equity investments are down, you can wait until market conditions improve. While conditions could improve in six months, it could also take three years. Should the market take until 2024 to recover, you can wait until then to fill liquidity needs for 2032, 2033 and 2034. By planning with a rolling 10-year window, you can wait out a market downturn because you know you have money set aside for 2030 and 2031.
If you are still working, now is a good time to continue investing. By dollar-cost averaging into the market—investing a set amount at set intervals—you can buy more shares of high-quality stocks at a discount compared to what they were selling for last year.
You may also look at your portfolio to see if there are opportunities to improve your tax situation. For example, if you have an Energy heavy portfolio, you may have incredible gains. If you were to sell some of your Energy stock, you could offset the gain by selling other stocks at a loss. You can take the proceeds from your Energy stocks sales and reinvest in an undervalued sector like Healthcare. This process can help you rebalance your portfolio to take advantage of the current economic environment while managing your tax situation.
Mid-year is a good time to evaluate where you are and look for moves that may make sense for your situation; however, keep the current market conditions in mind and don’t lose sight of your overarching plan.
If you have questions on how to begin shifting your asset allocation for retirement, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the June 25, 2022 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
