Q: I plan on retiring in 5-10 years. When should I pull out of the stock market?
A: This is a great question and one that everyone should ask as they get closer to retirement. The simple answer is that you shouldn't pull out of the market. Now before you write me off, let me explain. Your portfolio should be diversified at all times. Your portfolio should never all be in the market to begin with. The real question goes to deciding how much of your portfolio should be in the market. For years studies (like the ones done by Ariel and Schwab) have shown that African Americans participate less in the market than most other ethnic communities. Following 2008, many of us may have been happy about that. However, that's not a long-term prescription for success. Let me suggest a few things. At the 10-year mark I would suggest that you take a look to see if you are on track to having enough saved to sustain you during retirement. If you are, consider dialing back your exposure to the market. If you are a little bit behind you should probably consider keeping your market exposure a little higher. Remember this comes with additional risk in the event of a market downturn. When you get to the five-year mark go through the same process. Just remember that, for most of us, we are going to need to keep some of our money invested in the market to have a good chance of staying ahead of inflation during a retirement that could easily last 30 years.
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