Rebalance and Replenish
Cheaper stocks mean big bargains: rebalancing your retirement accounts now will buy more shares per dollar. Say you want to maintain a portfolio that’s half stock and half bonds—but with recent stock declines yours is now 70 percent bonds. You may feel safer at the moment, but bonds’ average earnings—3.2 percent a year—can’t match stocks’ 7 percent return. Shifting some bond money into stock funds “lets you buy low and sell high,” says Sheryl Garrett, a certified financial planner in Shawnee Mission, Kansas. “You may not want to look at your 401(k) statement, but unless you have an all-in-one fund that adjusts the proportions of stocks and bonds for you, you really should rebalance.”
For the Short Term, Keep Cash
If you have tuition bills coming or are living off savings, some cash is a must. “Your own sense of caution should rule,” says Jonathan D. Pond, who regularly dispenses financial advice to AARP members at www.aarp.org. “You may want to have three years of living expenses in a safe vehicle like Treasury-backed money market accounts.”
And then there’s the flexibility cash gives you to get in on buying opportunities that are sure to arise in a down market. “You really do need to have some of your money in the stock market to have growth, and protection against inflation,” says Richard Hisey, president of AARP Financial. “That’s true if you’re 55, 65, or even 85.”
Wall Street’s rewards do come with risk. But what Winston Churchill said of democracy as a form of government could be said of investing in the stock market: It is the worst way—except for everything else.