Portfolio Down Significantly? Now What?

Categorized | Featured, Retirement Investing

Tags | 401 k, economic, IRA, portfolio, portfolio management, retirement, Roth 401(k)

Posted on 20 November 2008 by Proldan

The recent economic downturn has created real challenges with respect to financial goals, specifically retirement goals. As many have witnessed a severe decrease of their portfolio values, the issue as to the ability to retire when expected or planned is being challenged. The truth of the matter is that there are four main components of the retirement decision:

1) How much will I need or desire?
2) When do I want to retire?
3) How much have I already accumulated

These three components work together regarding the reality of obtaining retirement goals; if one is affected or changed, the other two are impacted as well. In our current situation, the third (how much have I accumulated) has changed for many investors (for the most part decreased). This being the case, there are basically four decisions that now many Americans face, and those are to either:

1) Retire later
2) Live on less in retirement
3) Save more for retirement
4) Pursue more aggressive returns

The nature of how these are chosen obviously depends on each individual situation as personal risk tolerance, time horizons and cash flow situations will vary. However, it is prudent to take a serious look at the above mentioned variables in the quest for retirement as severe changes in a portfolio value obviously create the need for intense analysis and redesign of any previous investment strategies. Many investors, weather it be those participating in 401Ks, IRAs or other investment vehicles, tend to drive investment decisions based on fear during times of extreme market volatility. This may lead to anything from selling out completely and staying in cash for too long or deciding to not even look at what is going on with their money. The last thing one should be doing is hiding the statement in hopes that the portfolio will eventually come back. For while this may be true, one should not leave one’s financial future to the strategy of “Hope.”

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