Kavan Choksi Discusses How to Protect Retirement Money from Market Volatility

As people get older, their portfolios typically shift to more conservative investments that are able to weather bear markets. The amount of cash on hand one keeps also should grow with time. As per Kavan Choksi, even if one does retire right on the cusp of a recession, it is prudent to be diligent with the withdrawal plan, and not let emotions cloud their judgment. Investors must follow a disciplined approach and diversify their portfolios to be in a better position when the next bear market arises.

Kavan Choksi Briefly Talks About How to Protect Retirement Money From Market Volatility

Diversifying the portfolio is among the most efficient ways to mitigate risks. A lot of investors think that simply having their savings in a mutual fund would be enough. But things are not that simple. There are two key forms of diversification that every investor should employ:

• Investors should pay attention to asset allocation, which implies to the amount of each asset class they own. Asset class can be stocks, bonds, or even cash equivalents like money market funds.
• Investors should lower their exposure to risker holdings like small-cap stocks, as they get closer to the retirement years. Such securities are generally more volatile in comparison to money market funds or high-grade bonds. Hence, they may put their investment portfolio at risk in case the economy goes south. After all, older adults may not have enough time to wait for a recovery when stocks take a hit.

One must do their research and try to determine the asset allocation that appropriately fits their investment objectives and age. As asset categories are likely to decline or grow at varied rates over time, it is prudent to rebalance one’s account periodically in order to keep the allocation consistent.

Having a portfolio with bond funds can significantly help counterbalance market volatility. An adequate amount of investments and stock funds in commodities and real estate can help preserve the principal and counterbalance inflation. This is considered to be diversifying across asset classes, and which asset class shall come out on top in a given year tends to vary.  The other form of diversification takes place within each asset category. If an investor’s 60% portfolio is dedicated to stocks, it is a good idea to look for a nice balance between small-cap and large-cap stocks, and between value and growth funds.  It would be a good idea to have some exposure to international funds as well, as it can cushion the blow of slumps in the United States economy.

According to Kavan Choksi, retirees should try their best to maintain a delicate balancing act. To avoid the scenario of outliving their assets, people must consider holding onto at least some stocks. They also should be cautious in their approach as the time horizon of older investors would be shorter than younger ones. Keeping up to five years’ worth of expenses in cash or cash equivalents as a safeguard against economic slumps would be a smart move. In case one is worried that inflation will grow down the line and eat away their purchasing power, they should have cash equivalents in the form of Treasury Inflation-Protected Securities (TIPS).