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FAQ: Rebalancing Your Portfolio in Retirement?

portfolio

February 1, 2022 by Bill Gallagher

Q: What is rebalancing and why is it important? 

A: Rebalancing your portfolio involves shifting your investments among different asset classes to keep your portfolio in line with your target allocation.  Not only does this approach ensure that you are buying low and selling high, but can also eliminate the temptation to time the market.  Since we cannot consistently predict what a particular asset class will do in the future, it is impossible to know the optimum time to sell an asset to maximize profits.  But by rebalancing your asset allocation at least once a year, you will be taking advantage of market volatility and using it in your favor.  You will also be keeping your portfolio in line with your risk tolerance so that you can achieve your long-term goals.  

Asset classes (i.e. stocks, bonds, real estate, commodities, etc.) do not move in lock-step with each other.  For example, when stock prices are heading higher, bond prices tend to fall.  The opposite is also true: when stocks prices are declining, bond prices will typically increase.  This performance dynamic will result in a shift in your asset allocation, and if not monitored appropriately, could leave your portfolio exposed to a higher rate of fluctuation, perhaps more than you are comfortable with.   

For example, let’s say a newly retired individual chose to invest her retirement savings in a portfolio that consisted of 60% stocks and 40% bonds, which is consistent with her risk tolerance.  Let’s further assume the stock market performed very well over the first two years of her retirement.  Without rebalancing her portfolio, she may be surprised to find that her retirement portfolio now consists of 80% stocks and 20% bonds.  This mix will be outside her comfort zone and if the stock market begins to decline, she will experience a larger decline in her portfolio due to the higher exposure to stocks.  Higher fluctuation in her portfolio may cause panic and leave her no other option other than to liquidate her portfolio, at what could be a large loss.  Therefore, in order to eliminate trying to time the market and avoid panic selling, you want to make sure that you rebalance your portfolio at least every year in an effort to bring your asset allocation back in line with your risk tolerance.  

Filed Under: Personal Finance Tagged With: asset allocation, assets, financial advisor, portfolio, rebalancing portfolio, retirement planner, retirement planning

March 15, 2021 by Ryan Zacharczyk

When people think of Zynergy and the work we do, most focus on the financial side of retirement. Allocating a portfolio, distributing income over a lifetime, estate planning, and long-term care needs. Although each of these (and so much more) are a part of the retirement planning process, one often overlooked area of retirement we find extremely important is lifestyle. How will you be spending your time in retirement? Who will you spend your time with? What will you do?

The truth is, most retirees and future retirees are so focused on what they are retiring from, that they forget it is just as important to focus on what you are retiring to. We encourage our retirees to think about retirement as the next phase of a productive and enjoyable life. Not simply a time to be put out to pasture and enjoy a comfortable chair while we wait for the inevitable. Retirement is your time. What will you be retiring to?

If you have trouble answering that question, perhaps a few additional questions can spark your imagination and light a fire as you move headlong into your future:

  1. If I had all the time and money in the world, what would I do? How would I use that time and money?
  2. Who do I enjoy being with more than anybody in the world? Do I have the ability to spend more time with them?
  3. What are the things in my life that put me into a state of flow? (Flow is the state of pure enjoyment where time melts away and you get completely wrapped up in what you are doing for the shear pleasure of doing it)
  4. Are there any problems I think I could spend some time helping to fix? (Problems in my family? Community? Country? World?)
  5. Are there any challenges I have always wanted to take on that I have never had the time or money to dive into?

Take a look at your answers to the questions above. These answers should help you begin to build a framework about what is important to you. Maybe you are the kind of person that wants to travel and volunteer with homeless animals? Maybe you want to start a little business of your own? Maybe woodworking is right up your alley? Or babysitting for the grandkids and spending time with old friends is highest on your priority list? Whatever it is, make sure what you retire to is important to you and aligned with your values.

Retirement is the time to enjoy all that you have worked hard for, accomplish what you have yet to accomplish, and spend time with family and friends. Make sure your time in retirement is spent well by retiring to something, not just from something. A little planning and thought will provide you with the happiest retirement possible.

Filed Under: Retirement Planning Tagged With: long-term care, portfolio, retirement, retirement planning

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