Riding High on the Stock Market’s Gains: A Smart Time for Retirees to Rebalance

Investors are reveling in the stock market’s gains in 2023, as experts confidently revise their forecasts. While individual investors also join the bullish sentiment, retirees are advised to consider rebalancing their portfolios during this opportune period.

Importance of Portfolio Alignment for Retirees

Periodically reviewing and adjusting one’s portfolio mix is a prudent practice for all investors. However, it holds even more significance for retirees, who have lesser room for error compared to those with a longer investment horizon.

Stock Market Performance and Revised Forecasts

The S&P 500 has seen a remarkable 17% increase this year. Notably, Citigroup recently raised its year-end forecast for the index by 15%. This revision came as analysts expressed a higher probability of the Federal Reserve achieving the desired “soft landing.” Such an outcome would entail taming inflation without plunging the economy into a recession. Reflecting this optimism, almost half of everyday investors foresee a rise in stock prices over the next six months, according to the latest AAII Investor Sentiment Survey.

Rebalancing for Retirees

For retirees who started the year with a portfolio allocation of 60% U.S. stocks and 40% U.S. bonds, the current composition has shifted to approximately 63.6% stocks and 36.4% bonds. Recognizing that U.S. equities appear relatively expensive, trading at 20 times forward earnings, Katie Nixon, Chief Investment Officer of Wealth Management at Northern Trust, encourages retirees to examine their bond holdings. Surprisingly, taxable bonds have seen an increase of around 1% in value this year.

In conclusion, with the stock market’s impressive gains and positive investor sentiment, this is an opportune time for retirees to reassess and realign their portfolios. By diligently managing their asset allocations, retirees can navigate the market’s fluctuations with greater confidence and security.

Investing Strategies: How to Buy Low and Sell High

In the world of investing, the holy grail is certainly buying low and selling high. As a savvy investor, one way to achieve this is by taking some profits on your stock and beefing up your bonds. Not only will this strategy help you capitalize on market fluctuations, but it will also allow you to benefit from the current plump yields in safe assets.

For instance, consider the 2-year Treasury note, which currently offers a yield of about 4.7%. By adding to your bond allocation, you can take advantage of these attractive returns while maintaining a diversified portfolio.

If you’re uncertain about your current portfolio allocation, there are online tools available to assist you. TD Ameritrade, for example, offers the Morningstar Instant X-ray product at no cost. This tool allows you to input the ticker symbols of your holdings and their respective dollar amounts. It then provides a breakdown of your holdings by asset type, helping you gain clarity on your portfolio composition.

Retirees, in particular, can benefit from creating a personal “investment policy statement” to guide their decision-making process. This statement should include a target asset allocation, such as a balance of 60% stocks and 40% bonds, as well as rebalancing thresholds. For instance, you could set a rule that you will only rebalance when your current allocation deviates by more than 5 percentage points from your target in either direction.

However, rather than constantly monitoring your portfolio after every market move, it may be more prudent to conduct an annual portfolio review at a consistent time each year (the specific time is not critical). This approach allows you to assess your asset allocation relative to your targets on a regular cadence and make any necessary adjustments accordingly.

Christine Benz, director of personal finance and retirement planning for Morningstar, advocates for this approach. She believes that conducting a portfolio review at the same time each year saves you from the hassle of checking your portfolio’s allocations too frequently while instilling a sense of discipline in the process.

In conclusion, by strategically rebalancing your portfolio and taking advantage of tools like the Morningstar Instant X-ray, you can make informed decisions that align with your investment goals. Remember, the key to successful investing lies in buying low, selling high, and staying disciplined throughout the process.

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