Stick With the Mix of Stocks, Bonds That Works for You
Don’t change your mix of stocks and bonds just because the market is acting crazy.
The mix of stocks and bonds should reflect where you are in terms of your retirement and how much risk you are willing to take.
When the stock market is going through one of its periodic roller-coaster imitations, you may be tempted to make radical changes in your holdings to avoid possible losses or attempt to pick up a fast profit on a rapidly rising market.
The problem with this strategy is that it isn’t a strategy, but a guessing game. Nobody knows when markets are going to turn and you will probably guess wrong most of the time.
You are better off in the long-term sticking with an asset mix that makes sense for you and adjusting it as you near retirement.
As a general rule, the closer you get to retirement, the greater percentage of bonds you should own (roughly your age).
Whatever you decide is right for you, don’t get blown off that asset mix just because the stock market is not moving in a familiar manner.
As time passes, you will want to adjust your holdings to reflect your age, financial goals, and risk tolerance.
If you are fortunate enough to receive a lump sum of cash (bonus, inheritance, and so on), stick with your asset mix formula rather than chunking it and becoming an active trader.
Having a lump sum fall into your lap doesn’t give you any special insight into the stock market you didn’t have already.
Numerous studies conclude that staying in the stock market, even when it shows a significant decline is a better choice than pulling out and trying to guess when the best re-entry point will be.
If you miss the turn of the market from generally down to generally up, by just a few weeks, you may miss some of the biggest gains of an upcoming rally.
However, rather than worrying about when the market will switch directions, focus on getting your proper mix of stocks and bonds right for your financial situation.
This mix, which you’ll gradually adjust as you grower closer to retirement, is your best shot at making the stock market work for you over the long term.