- The Essential Military-to-Civilian Transition Resource

Weatherproofing Your Finances
Courtesy of USAA

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If your retirement accounts seemed battered over the last year, you are not alone. In the year prior to October 15, 2008, U.S. stocks plunged nearly 37%. If the current market ups and downs have you looking for the next dark cloud, these tips may help ease your mind.

Spread it around. Retirement portfolios that include a wide variety of investments tend to be much less volatile. Why? Because, generally, the greater the variety, the greater the chance you will own investments that rise when others fall. An appropriate mix of stock, bond, and cash investments may be just the ticket.

Create a firm foundation. When the markets are at their roughest, it is comforting to know a portion of your portfolio is completely guaranteed against loss. A guaranteed savings annuity may be conservative, but it protects your money and builds through any market environment.

Keep your balance. Over time, portfolios tend to stray from their original mix. Consider for example an investor who put 30% of a portfolio in bonds and 70% in stocks. If bonds have a strong year while stocks lag, things may shift, leaving the investor with 35% in bonds and 65% in stocks.

The solution? Once a year put things back in order by considering the use of one or both of these techniques:

  • Sell the investments that have grown beyond your target allocation and buy more that have fallen below it.

  • Re-direct new money into lagging investments.

If you are re-balancing non-retirement accounts, keep an eye on the tax implications.

Put your investments on autopilot. Consider investing in target funds. These mutual funds allocate assets toward a future retirement date, automatically reallocating the portfolio as it draws nearer to the target date of the fund. The less time you have before retirement, the more conservative the investment choices become – a process that helps simplify decision making and provides ongoing diversification which may help reduce risk.

Focus on the horizon. Those who are prone to motion sickness are often advised to focus on a distant point – advice that works well for retirement investors. Checking your portfolio too often will make you feel every one of the market’s bounces. Instead, monitor your portfolio quarterly or annually, staying focused on the future.


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