How to Protect Your Retirement Savings Amid Market Volatility
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Here's your money briefing for Wednesday, April 20th. I'm J.R. Whelan for The Wall Street Journal. If you're like a lot of people and stocks make up a big chunk of your retirement portfolio, you might call the last couple of years the good old days, highlighted by double-digit percentage growth. And that may have led you to believe your financial goals were well in hand. But experts say not so fast. You and your retirement savings are in for a reality check.
You could potentially see returns on a stock portfolio a little bit smaller in the coming year or even couple of years than you have in the past.
So how far are returns expected to shrink? And what adjustments should you make to your portfolio to protect your savings? Wall Street Journal contributor Michael Pollack joins us to discuss after the break.
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How is market volatility affecting retirement portfolios after recent strong gains?
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After several years of strong returns, stocks more recently have been held back by stubbornly high inflation, rising interest rates, the war in Ukraine, and slowing corporate profit. And that likely has many retirees and people building a retirement nest egg wondering what moves they should make to protect their holdings, especially those that are closely tied to the stock market. WSJ contributor Michael Pollack has been speaking with financial experts about that, and he joins me now. Michael, thank you so much for being with us. Sure. So Michael, this period of uncertainty follows significant gains by the stock market over the past couple of years. Did this more recent downturn in stocks catch people off guard?
And what lessons can investors take from it?
One advisor who I spoke with suggested that it's really a good idea for people to go back and take another look to see what happened. The problem is that just looking at what happens in your portfolio doesn't necessarily tell you all you need to know about your retirement needs and your financial goals. And so therefore, you have to look at not only the amount of asset appreciation you're getting, but also what your financial spending needs might be going out a few years.
Okay, so let's talk about what retirees can do now to protect their holdings in this unsettled environment. Are there particular kinds of investments that make more sense now as opposed to, say, a year ago?
Well, the one key thing there, of course, is that the growth part of a portfolio, the stocks that... might be in the technology area. Stocks that have higher price-to-earnings ratios are really getting hit by the increase in interest rates that we've seen. So if an investor is holding a lot of those kinds of stocks, they should probably expect that that part of the portfolio is not going to do very well for a little while, perhaps another year or so. But, I mean, the basic message really should be that your portfolio needs to be well diversified and well balanced. And so therefore, if that one part of the portfolio, the growth stocks, have really kind of taken over, then it might make sense to go back and trim those a little bit and add some other kinds of stocks that may be trading at lower valuations.
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