As markets drop, think long-term with your retirement savings – MarketWatch

Posted: March 5, 2020 at 12:47 pm


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Fear is infecting the stock market on concerns that the spread of the coronavirus will interfere with global trade. In the past few days, U.S. stocks have slid into a correction, defined as a 10% drop from the market top.

Its safe to say that only day traders like thinking about stock market corrections. But for the rest of us, trying to ignore market free falls is not a bad strategy, especially when it comes to a long-term goal like retirement.

Thats because one of the best ways to make sure your retirement accounts survive economic turbulence is to fortify those accounts as well as you can and then go do something else, come what may.

See: Heres how the 30 Dow industrials companies are prepping for the impact of the coronavirus

Dont get caught up in the motion of the market when investing for a long-term goal, says Chris Remedios, a certified financial planner with Remedios Financial Planning in San Francisco. If it makes you uncomfortable when things go down, dont look.

Taking the steps below will help protect yourIRA, 401(k) and other retirement accounts from events beyond your control.

During big market SPX, -3.34% swings, your investment portfolio could well lose money. This is where ignoring the market becomes important if youre investing for retirement.

You have a long-term goal try to focus on that long-term goal and not the short-term volatility of the markets, says Rob Williams, vice president of financial planning at the Schwab Center for Financial Research.

If the turbulence has you worried, dont forget that though the market is falling, its falling from record highs. Investing in the stock market remains the best way to achieve long-term growth.

Even a diversified portfolio can lose money, but diversification helps stem your losses by reducing investment risk. You want to be sure youve spread your money around so if any stock market sector crashes particularly hard, youve got investments in other sectors providing stability.

Dont be too exposed to one or two stocks. We see a lot of individuals who are invested all in one company, Williams says.

While investing in single stocks can be risky, a single mutual fund can be completely diversified. Target-date mutual funds offer one-stop-shopping convenience, because they invest in a broad swath of stocks and bonds. Alternatively, you can build your ownsimple retirement portfolioto get you to your goals. Heres more onhow to invest your IRA.

Asset allocation means figuring out what percentage of your money goes to which investment. At the highest level, that means how much money you have in stocks versus bonds.

Also see: Coronavirus fears are clobbering the stock market is it doing the same to your retirement?

Your time frame is important here. If youre decades away from retirement, a hefty allocation to stocks makes sense, even when the stock market is tanking because you have time to let your money ride that out. Just how hefty your allocation is will depend on yourrisk tolerance.

But if youre closer to retirement, make sure any money youll need for living expenses in the next five years or so is in cash or a cash-like investment such as short-term bonds.

A rule of thumb is to have about 60% in stocks and 40% in bonds or cash at the retirement date. Moving toward that is a good way to be prepared for a down market, Williams says.

If youre in your 20s, 30s or 40s and dont have plans to retire until youre in your 60s, time is on your side. Dont sell out of the stock market when it starts dropping.

In fact, a better strategy might be to buy more shares. A down market just means youre buying stocks on sale, Williams says.

Related: Retiree warning: History suggests were overdue for a bear market

Even in your 50s or older, buying might be a strategy for you too, given that retirement may last as long as two or even three decades.

While youre aligning your investment strategy with your long-term goals, assess your overall personal finances, too.

A stock market correction can be the push you need to clean up your finances. Smart steps to put on your to-do list include paying down debt and building an emergency fund. Moving forward on those goals sets you up to better weather any economic headwinds ahead.

And dont think you have to get to perfect in 60 seconds or less. Its OK to take small steps toward each goal. For example, just $500 to $1,000 in a savings account can help provide a safe harbor from rough economic waters.

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As markets drop, think long-term with your retirement savings - MarketWatch

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March 5th, 2020 at 12:47 pm

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