Nearing Retirement? Expert Tips To Overcome Stock Market Jitters

According to S&P Global, the stock market has lost over 17% this year through August, as measured by the performance of the popular S&P 500 index.

With such volatility, it is prudent to reassess one’s asset spread ahead of a likely recession. Are you nearing retirement and wondering how much you should have invested in stocks?

Asset allocation refers to the subdivision of a portfolio between different types of investments (e.g., stocks, bonds, cash, real estate, etc.).

Research shows asset allocation has a far greater impact on a portfolio’s returns and volatility than the specific investments chosen (e.g., which specific mutual fund, stock, or bond).

How can you address market and sequence risks with a retirement portfolio partly in stocks? You must maintain proper asset allocation as you approach retirement, enter it, and live through it.

Some asset classes are riskier than others, which usually corresponds to higher expected returns. Mixing assets that don’t correlate (i.e., when one zigs, the other zags) reduces your volatility faster than it reduces your expected returns.

There are various simple formulas for a stock allocation as a function of age, some more conservative and others more aggressive.

It’s impossible to define a single ideal asset allocation, except in hindsight. The best you can shoot for is the optimal asset allocation for you personally, which will change over time.

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