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How can I take control of my retirement in rough times?

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While you can't control the markets, it's important to focus on the things you can control: taking steps right away to improve your portfolio and increase your comfort level so you'll be better situated to ride out the turmoil.

Seven steps you can take now

If you're in or near retirement, consider our "top seven" list of concrete actions that are particularly appropriate in rough economic times.

One characteristic of successful investors is the ability to strive for higher returns while tempering that pursuit with considerations of risk. A smart move? Assessing your risk tolerance during a "neutral" market that's not swinging too high or too low. Studies show people's risk tolerance is influenced by recent market activity: When the market goes up, people want to take risk; when it goes down, people want to avoid risk.

Action plan: Use the real world to gauge your true risk tolerance. If you're finding it hard to sleep at night, consider selecting a portfolio with a more appropriate risk level.

If risk tolerance refers to how much dramatic portfolio swings bother you, then capacity refers to whether your financial situation allows you to take risks. For example:

  • Younger investors are encouraged to be more aggressive because they have decades until retirement. Their portfolios have time to grow and make up any losses.
  • Older investors have less time to make up for losses, so it makes sense to be less aggressive.. 

Action plan: Take a look at your current financial situation and consider making adjustments according to your risk tolerance. We believe equities shouldn't be more than 60% of an older investor's portfolio and that percentage should decline over time.

In a bad economy, a natural inclination is to flee the equity markets for the safety of cash investments. While there's nothing wrong with cash investments for part of your portfolio (and a large cash investment position makes sense for those with short time horizons), history has shown that cash-heavy portfolios have poor long-term return prospects.

Action plan: Consider your longer-term objectives for investing in the first place, including your risk tolerance, and see whether you have too much (or too little!) cash in your portfolio to achieve them.

Investing is a means to an end, not an end unto itself. Your strategy depends on how you ultimately plan on using the proceeds from your portfolio.

Good portfolio practices: 

  • Set aside enough cash to cover routine expenses for one year (minus what you expect from reliable non-portfolio sources of income, such as Social Security). 
  • Allocate the rest of the portfolio using our . It shows how you might allocate your retirement portfolio over time. 
  • Keep an additional two years' worth of portfolio spending in high-quality, short-term instruments as part of your fixed income allocation; in a long uncertain market, you can use those short-term bonds to help cover spending needs.

The one-year spending reserve plus the two years' worth of short-term bonds in the portfolio itself are more likely to remain stable, making it easier to ride out short-term stock market fluctuations.

Action plan: Consider applying these portfolio practices to your own assets.

If your portfolio is an important source of income for you, revisit the amount that you are withdrawing from it. No one can control what the stock market does, but you have far more control over the spending rate from the portfolio.

Action plan: Make sure you understand your spending levels, as well as your portfolio value. Withdrawing large amounts from your portfolio during down periods can permanently impair the ability of your portfolio to recover when prices rise again.

A down market is a particularly opportune time to review your specific holdings. Keeping securities (stocks, bonds, and mutual funds) with poor prospects for the future is never a good strategy, but is seemingly punished even more in tough market environments as investors collectively seek out safe havens.

Action plan: Take a look at Schwab Equity Ratings® to check the quality of your own holdings.

Portfolios that are highly concentrated in a handful of securities are always troublesome from the standpoint of risk management. But they are especially so in a fear-driven market, when investors tend to react with a "sell first and ask questions later" mentality. For you, that means that any single holding you own can be subject to a big downward movement—even if the company is fundamentally sound.

Action plan: Review each holding in your portfolio and ask, "What if something bad happens to that stock, bond, or mutual fund?" If potential losses on a single security will cause undue hardship, you probably have too much exposure to that security. Consider selling some of it and investing the proceeds elsewhere.

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