Talk of recession is never comforting, especially for people who are on a fixed income or who are looking to retire in the next few years.
Yet that’s what exactly economists are talking about most these days. Roger Aliaga-Diaz, U.S. chief economist and head of portfolio construction at Vanguard, told MarketWatch he expects a recession next year. But other experts, including Federal Reserve officials, say a recession might still be avoided.
With inflation rising and volatility in the stock market, Americans are wondering how best to prepare. Advisers say that now is the time to review your investments and your retirement plan and to find ways to stay anchored when storms hit.
“It is a difficult time in the market, and with a recession most likely on the horizon, it is even more challenging for those close to retirement or just retired,” said Devin Pope, a certified financial planner with Albion Financial Group.
Checking in on asset allocation is always helpful, as it shows how much of your portfolio is invested in higher-risk versus conservative options. A financial planner or a robo-adviser might have created an asset allocation for you based on your time horizon, your financial goals and expected volatility in the markets, so you should confirm with a qualified professional that the mix of stocks and bonds is still appropriate for your needs.
Keep in mind, Pope said, that although your portfolio may be showing many fund tickers in the red, it could still be producing income each year through dividends and interest. And your retirement portfolio — including the way it’s allocated — is meant for the long haul.
“Retirement is not the end of their financial life. They still have a few decades to be in the market,” Pope said. “Financial success is about time in the market, not timing the market, and if you have 20 years to live off of your money, it is important to have that attitude.”
As with any market downturn or volatility, advisers caution not to respond emotionally by making drastic changes. Now is simply the time to review.
Still, there may be situations when it is appropriate to tweak your portfolio, such as if your risk tolerance has significantly changed. Risk tolerance is the amount of risk an investor is comfortable taking, compared with risk capacity, which is how much risk an investor must take on to achieve their financial goals.
These two measurements aren’t always aligned, but if someone who is saving for retirement or is already retired is unnerved by the market and unable to shake the stress of the losses they’re experiencing, they should consult with a financial professional.
If you have a financial adviser managing your portfolio, ask for a checkup, if only for peace of mind, said Ryan Eyerman, a certified financial planner at CKE Financial Services. An adviser can run projections of how your long retirement savings, as they currently stand, can last in this economic environment, and check that your plan is still on track.
Confirm that you have cash reserves to cover at least six months of living expenses, Eyerman said. “History has shown us that recessions typically last six months, so at least you will have the peace of mind that if a recession does come to pass, you can ride out the rough patch on your cash while the market returns to a more normal trajectory.”
And remember not to neglect other aspects of your life, said Marisa Rothstein, a certified financial planner and lead adviser at Siena Private Wealth.
“There is no reason to waste energy worrying about things you cannot control, namely, the stock market,” she said. “Redeploy the energy you were using to worry about your stock portfolio to focus on what you can control. These are things that will have a potentially greater impact on the quality of your retirement than the day-to-day balance of your portfolio: keeping healthy, managing your expenses, performing well at work. And,” she added, “keep saving.”