Although versatility in the stock market can affect a person’s investments, it is not the only worry those saving for retirement may have. Significant events such as changes in one’s personal life and new tax laws can influence a person’s investments. Here are six questions you should ask yourself about your investments in order to avoid any surprises and to be better prepared for your future.
1. Have there been any changes in your finances? Have you gotten a raise or had your hours reduced? If so, review your investment goals and risk tolerance. Can you invest more now or should you cut back?
2. Have there been personal changes in your life that affect your investments, such as marriage, divorce, new baby, child going off to college, new job, or taking care of an elderly parent? Figure these new costs into your investment portfolio and adjust it as needed.
3. Do you have new time horizons or have old ones changed? If you have a new short-term time horizon such as saving to purchase a new car next year, you may need to adjust your investments for your retirement to meet this horizon. You need to look at what you need to save for the new car and your years to retirement. It may be better to save less and put off buying the new car for another two years instead of trying to buy it in one year.
4. What can you do if a decline in the market prevents you from retiring at the time you had planned? You can delay your retirement buy a year or two until you feel comfortable. Retire and work part time to supplement the loss. Downsize on your lifestyle, by taking cheaper vacations, buying a smaller or older home or invest in home improvements that will help on heating and cooling costs. If possible, increase contributions to your 401K.
5. Do you need to reevaluate your investment risk? If you have been aggressive in the past, you may want to be more conservative, especially if you are getting closer to retirement.
6. Do you need to readjust your portfolio to maintain the balance you have set up? For example, if you have had an investment mix of 70 percent stocks and 30 percent bonds that you have not changed in the last couple of years, you might want to consider making some changes, because equity-oriented mutual funds may have fallen more than the bonds. You may want to dump some bonds and buy more stock.
Whatever your investment situation is, if you are unsure how to go about saving for your retirement, it is best to seek professional help through a financial planner.
Source: Investment Seminar, Personal Experience