The past week was an unsettled one as far as the stock market was concerned. But it also wasn’t particular unusual.
The reality is that the stock market is known to be volatile, and it’s undergone its share of corrections through the years. Investors who stay the course and keep their portfolios intact during downturns can often avoid losses and come out winners.
Things get dicey, however, when your portfolio takes a hit right as you’re on the cusp of retirement. It therefore begs the question: Should you hold onto stocks if retirement is right around the corner? Or are you better off dumping them and sticking to safer investments instead?
Don’t go to extremes
Whether you’re investing for retirement in an IRA, 401(k) plan, or brokerage account, it’s a good idea to shift toward safer, more conservative investments as that milestone nears. Once you retire, you may need to start tapping your portfolio to cover your expenses, since you probably won’t be able to manage your bills on Social Security alone. And if you’re heavily loaded on stocks, that could mean having to liquidate investments when they’re down, thereby locking in losses.
But while it’s smart to reallocate your assets as retirement gets closer, dumping your stocks entirely is not actually a wise move. For one thing, you’ll need stocks in your portfolio so your savings can continue to generate growth during your senior years.
Secondly, say you’re about to retire and you have 50% of your portfolio in stocks. If the market crashes right before your retirement date, you can simply access the non-stock portion of your portfolio as needed and wait out that downturn.
The right stocks to hold in retirement
Keeping stocks around during retirement could help ensure that your portfolio sustains decent growth. That said, retirement isn’t the time to load up on speculative stocks that carry a lot of risk. If you’re going to hold stocks in retirement, you may want to stick to tried and true companies that have been around for many years.
It’s also important to own a diverse mix of stocks in retirement. That means that within the stock portion of your portfolio, you shouldn’t have 85% of your assets in tech stocks. If that sector crashes, it could spell bad news.
Another good option for retirement is to own broad market ETFs. Those will give you a decent amount of exposure to a range of stocks, thereby lending to more diversity in your portfolio. Plus, the great thing about ETFs is that they take much of the guesswork out of investing. And that could, in turn, take a load of stress off your plate.
Finally, consider holding some dividend stocks. That way, you’ll be privy to regular payments you can cash out as needed or reinvest.
While you may need to make changes to your portfolio in the years leading up to retirement, don’t make the mistake of unloading your stocks entirely. Instead, invest in stocks in moderation so your portfolio can continue to grow wealth even as you’re tapping it consistently.
