The high inflation numbers. Fed is going to start raising interest level. Stock market has been volatile changing daily. Worse market is down today. Loud screamers advising sell everything or buy everything. What to do?
First don’t panic. It is a change in the market. Making drastic or daily moves are not the best idea. No one really knows what the market will do. I have concerns and made changes to my 401K yesterday. Will explain what and why below. (Not a financial adviser. My knowledge is reading a lot of financial articles and subscribing to an advisor)
Interest rates were lowered or held low by the Federal Reserve since 2008. Now that inflation has shot up to 7.5% in January the Fed will reacted by raising rates. An increase from 0-0.25% is way overdue. 3-4 raises to 1-1.25% will not trash the economy this year. Long term the Fed historically overshoots, but may take quite a while.
However rate increases will affect bonds, the stock market and possibly slow real estate down. Existing bonds lose value as new bonds with higher interest rates are issued. Bond market is much larger than the stock market with more transacted daily. The stock market grew ~21% in 2021 as the Fed injected liquidity and low rates. Now the stimulus is being withdrawn and rates going up may affect parts of the stock market more.
All I did is move 15% of bond funds into a stable value fund. I moved 30% of stock index funds into actively managed funds. 20% to 2 international investment funds and 10% added to Target year fund. Closed index fund and Russell 2000 fund. More fees, but experienced management should perform better for the next few years than growth or index investing. Now have 7 different funds in 401K. Am working and contributing. Expecting savings growth despite stock market corrects. Next year will evaluate again.
Making investment changes is not an all or nothing approach. No one should be 100% in stocks this year. Nor go to 0% stocks. Be diversified. You could invest in short term bonds up to a year or high interest rate savings instead of stable value funds, but I did not have those options in my 401K. You need to evaluate what you hold and make small changes to balance things out.
Think about your retirement funds and make small changes to lower your risk this year. If you are concerned about your situation, get a fee based Fiduciary. For retirees recommend Mauldin Economics Strategic Portfolio (Jared Dillian). Investments are typically 20% stocks, 20% bonds, 20% real estate, 20% commodities/precious metals, and 20% cash for a resilient portfolio. Minimize risk while earning money on your savings.
Hope our investments grow this year, but preparing for different times.
