Retirees and those approaching retirement can’t diversify away all of the risk in their portfolios, but they can certainly protect some of their savings against market gyrations.
Investors are grappling with two threats at the moment: The prospect of rising interest rates and stock market volatility. The Dow Jones industrial average tumbled by 1,175 points or 4.6 percent on Monday.
“It’s not just stocks getting crushed, also bonds are being crushed,” said Douglas Boneparth, president of Bone Fide Wealth in New York City. “If your goal is preservation, neither would be your friend right now.”
That’s why financial advisors with clients who are near retirement or who have short-term goals are recommending that they keep a chunk of their savings in cash, certificates of deposit and money market funds.
“As long as you don’t panic, all you need to worry about is the money you’ll need for the next three to four years,” said David Mendels, director of planning at Creative Financial Concepts in New York City. “Let the rest ride.”
Here’s how to use your “safe assets” wisely.
The right bonds
Last year’s gains were enough to make this recent bout of volatility seem scary: Consider that the S&P 500 was up nearly 20 percent for 2017.
“Clients have had the feeling that at some point, we had to have more volatility in the market,” said Gerald Jarzabek, senior vice president at The BCJC Group of R.W. Baird in Cleveland.
“Everyone is preparing clients for the 5 percent to 10 percent correction we’ve been waiting for,” he said.
Instead of yanking assets out of the market altogether, advisors have continued rebalancing portfolios and investing some of those proceeds in high-quality short-term bond funds.