Will Recent Market Fluctuations Affect your Retirement Funds?
Recently, dramatic dips in the stock market have caused many people to worry about their economic future, particularly as it deals with their retirement funds. Are significant drops in the Dow Jones enough to spoil your retirement dreams? Many economists don’t think so, and here is some practical advice they would like you to consider.
Opportunities Related to Stock Market Correction
A stock market correction occurs whenever stocks drop more than ten percent from their peak sales price. Corrections occur quite frequently, but rarely turn into a “bear market”, which happens when stock prices drop more than 20 percent.
According to economic author and Forbes contributor John Wasik, a stock market correction provides the perfect opportunity to save for retirement. You can purchase a greater number of shares without investing a great deal of money, and are better able to fine-tune your plan and diversify your portfolio.
Times when you have little money to put back is also when you can focus most on low-cost funds that have very little costs associated with them. For many, this is an easy way to begin investing toward retirement.
Revamping your Retirement Plan
A stock market correction often serves as a reminder that markets are volatile. Accordingly, many people elect to revamp their retirement plans anytime there is a drastic fluctuation in stocks. Look at your portfolio to determine how much you have invested in stocks, bonds, and other interests.
If your portfolio is very stock heavy and you are close to retirement age, now may be the time to diversify. On the other hand, if you have more than 20 years to go, you have more than enough time to make up any losses you have incurred, and may therefore wish to leave things alone.
Even if you are nearing retirement, a sudden drop in stock prices doesn’t have to spell disaster. Money magazine recommends ramping up your savings, particularly if you are already stashing away less cash than you should be. An added benefit is the fact that you won’t have to worry about unnecessary fees and commissions eating up your earnings.
An Opportunity to Rebalance
U.S. News and World Report advises rebalancing or adjusting your holdings at least semi-annually. You may also need to rebalance whenever certain assets fluctuate by more than five percent. This is something that often occurs following a stock market correction such as the one we saw recently.
Rebalancing keeps your portfolio in line with your desired goals as well as your risk threshold. It also makes you more aware of buying opportunities due to lower market prices. If you are not rebalancing your portfolio on a regular basis, you may be subjecting yourself to unnecessary risk, and may also notice stagnant or little growth over time.
Recent downturns in the stock market are not necessarily cause for alarm, but that doesn’t necessarily mean you should ignore them. Take advantage of the opportunity to reevaluate your retirement plan and invest more and you will be better off for it in the long run.