May 31, 2022
The theme this week on the Retirement Quick Tips Podcast is: Don’t Just Sit There. Do Something! If you can do something proactive other than just sitting on your hands and hoping that the markets turn around soon, you’ll be better able to get through this difficult time while keeping your long term investment strategy intact.
Today, I’m talking about one of the most important things you can do during a stock market downturn, which is rebalancing.
If at the end of last year, you had a portfolio made up of 60% stocks and 40% bonds, but now your portfolio is down 25%, that mix is probably off by a few % points. If a portfolio has drifted from it’s target mix of stocks and bonds in either direction by more than 5%, then it’s time to rebalance.
Because the stocks are now worth less and are a lower percentage of the portfolio because of the market downturn, when you rebalance to get back to your 60% stock allocation target, you’ll be adding to stocks.
Yes, adding to stocks when they’re down 15,20,25%! Everyone wishes they could buy low and sell high, but when you’re disciplined about rebalancing in good markets and in bad, that’s exactly what you’re able to achieve.
Research shows that rebalancing and taking advantage of a market downturn to add to stocks adds to your long-term returns in a real and meaningful way.
Plus, it helps you take a more opportunistic stance with your investment portfolio by adding to stocks, rather than running for cover, selling everything, and hiding out until you feel better.
That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.
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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance