Suze Orman thinks rising stock prices might be a problem for you – here’s why
Suze Orman’s latest post on retirement planning includes some counterintuitive advice: Empty some of your stocks.
“I firmly believe that your long-term retirement investments should include a large portion of stocks,” Orman wrote in a blog post. “Over time, stocks offer the best chance for gains that will outweigh the rate of inflation.”
While that belief hasn’t changed, Orman says, now is the time to check to make sure you don’t have too much actions right now.
Yes, when it comes to stocks, there is such a thing as too much.
Here’s why she’s urging her readers to rebalance their retirement accounts now.
What worries Suze?
Depending on your age and career level, Orman generally recommends that you hold 65% of your holdings in stocks and 35% in high quality, short to medium term bonds.
For those who take a more manual approach to managing their retirement accounts, it is possible that the dynamic market of the past few years has caused your asset balance to shift on its own.
“Over the past five years, the S&P 500 stock index has more than doubled. Over the past 10 years, it has almost quadrupled, ”says Orman. “If you’ve left your portfolios on autopilot, it could probably mean that you now own more stocks than you intend or should.”
Left on their own, your increasingly valuable stocks may have started to represent an even bigger part of your account. Instead of a 65/35 split, Orman says you might now be looking at 78% stocks and 22% bonds.
Why is it a problem?
Your investment strategy needs to be adjusted or realigned as you approach retirement. When you are younger or earlier in your career, you can afford to make riskier investments.
But, says Orman, “As you approach retirement, you want to make sure you’re taking the right amount of risk, and not too much (or too little). “
Orman cites a recent Fidelity Investments analysis of company-managed pension plans. Fidelity estimates that about 20% of savers own more stocks than they would recommend to someone their age.
And Fidelity found that it was the generation closest to retirement age – the baby boomers – who were most likely to have too many stocks in their portfolio.
The problem here is, if the stock market plunges just before you’re about to retire, you might not have time to sort it out before you have to rely on those funds.
What can you do about it
Your first step should be to examine your wallet balance. If it’s been a while, there’s a good chance you need to shake things up.
“The good news is that it’s very easy to rebalance your portfolio back to your target allocation. Money inside a 401 (k), 403 (b) or Individual Retirement Account (IRA) can be moved without having to worry about a tax bill, ”says Orman .
As for what you should invest in, Orman is very clear that you should choose high quality bonds.
Even though high yield bonds offer more income, they can be as volatile as stocks when the stock market crashes, making them a riskier choice when that’s exactly what you’re trying to avoid.
Not that long ago, adjusting your portfolio meant trying to have your advisor or broker on the phone and wait for them to complete your order. Now in the age of investing apps for your smartphone, you can easily set up and rebalance your own portfolio with just a few clicks.
“Now is a particularly good time to do it,” writes Orman in his blog post.
“None of us know what lies ahead for stocks, but what we do know is that stocks are at record highs. They might well climb higher. But we also shouldn’t be surprised if there is a market downturn. “
What else can you do?
No matter how hot or cold the market is, or how much savings you already have, there is always more you can do to make sure you have all the money you need – and even more – at. retirement.
Invest what you can save. Making money on the stock market doesn’t require you to be a financial expert or an obsessive. By downloading a popular app that automatically invests your “spare” from everyday purchases, you can create a portfolio that grows steadily in the background, while you focus on the rest of your life.
Make sure you get the best price on insurance. By looking for the cheapest policies, you could potentially reduce your auto insurance costs by $ 1,100 this year. And while you’re at it, why not cut your home insurance bill by an extra few hundred dollars a month?
Refinance Your Mortgage and Save Hundreds. If you took out a mortgage just over a year ago, refinancing to one of today’s lowest mortgage rates could save you a huge chunk of change. Some 14.1 million homeowners have the potential to save $ 287 per month refinancing their loan, says mortgage data and technology provider Black Knight.