Why I caved and altered my retirement portfolio

You have no control over what the market does. The savings part is the only part you can control


I RECENTLY did what most financial advice forbids: I stuck my hand in my retirement portfolio and backed out of some stocks.

Earlier this month, I stared at my long-term portfolio, got spooked by the 81% that sat in equities and dialled that figure back to a more moderate 60%. I also tripled the fixed income portion of my portfolio to 27%.

I’d been pretty aggressive since I started investing in my early 20s and benefitted from the hefty exposure to stocks. In just the last two years, my portfolio has been up 28%. So, why the change in direction? Why not just “stay the course”, as many financial experts (myself, included) encourage us to do, especially in these uncertain times?

Here it is: I’m concerned about the fundamentals of our economy. I’m worried about if and how the job market can rebound anytime soon, and I’m not as bullish on long-term stock returns. Continuously exposing my nest egg to all this risk now feels overzealous. Although the stock market appears to suggest we’re headed for a robust recovery (cocktails in hand, no masks required), I’m not buying it. Literally.

More relevant, I turned 40 this year and am hoping to begin drawing down on this portfolio starting at 60. That gives me a solid 20 more years to hit my savings target. I know that’s probably enough time to recover from this recession and likely the next one. But my appetite for “probably” is less so these days.

Also worth pointing out: I am the breadwinner in our marriage, with my earnings accounting for about 80% of household income. My business largely helps support our family of four and the house in the suburbs we just purchased.

My plate’s becoming increasingly full, and I don’t have as much room now for a highly unpredictable, volatile investment portfolio. If we’re being honest, I did glance over my shoulder before making the adjustment. It felt like a betrayal, going against the “do nothing” advice that has become the industry standard.

Still, I’m confident it was the right move — for me, that is. And the certified financial planners I spoke to along the way, while not exactly high-fiving my decision, admit that I’m not misguided.

“It’s not what I would do, but I’m much more comfortable with risk,” says Anjali Jariwala, founder of FIT Advisors in Los Angeles, California. “Your risk tolerance has come down, as you’ve gotten older and you have more responsibilities, which is very reasonable,” she said.

“The current events triggered you to reassess…but really, this is something you should do annually or whenever there’s a major life event such as having children, (making a) career change or retirement,” adds Angela Moore, founder of Modern Money Advisor, a financial planning firm based in Miami, Florida.

It started with a sleepless night. Constantly worrying about your investment portfolio is a valid sign that you may be taking on too much risk, the experts agreed.

“The best balance between equities and fixed income… provides us the possibility of growing our funds to meet our goals, but also lets us sleep at night,” market veteran Linda Davis Taylor told me. She is the former CEO of Clifford Swan Investment Counselors in Pasadena, California, and the host of the podcast “Money Stories with LDT”. And that’s just it. I couldn’t sleep.

Besides my three-year-old daughter, who occasionally crawls into our bed at 2am, few things wake me up at night. But here I was, lying in bed in my brand-new Colonial, unable to stop thinking about what ifs.

What if the looming fiscal cliff leads to a second Great Depression? What if a cure for Covid-19 is years away, if it ever comes at all? What if our family depletes our more than one year’s worth of emergency savings in said Depression, with still no end in sight to this madness? All these questions warranted a closer look at the numbers.

Making money moves based on pure adrenaline is never wise, and I was emotionally charged. So I asked, would I be willing to commit to this new allocation for the next, say, 10 years, and not be tempted to revert back on a whim? I rationalised, ‘Yes’.

“Don’t just do it as a timing issue,” says Jariwala.

“Research shows you end up worse off because you have to time it right twice. You need to know when to get out and go back in.”

And what about hitting my target savings goal? A more conservative portfolio may no longer get me to where I want to be in the same time horizon. To offset this potentially slower growth, I made a personal commitment to invest more of my income. This was something all the planners cheered.

“You have no control over what the market does, no matter what your allocation is,” says Moore. “The savings part is the only part you can control.”

So, my parting advice for anyone considering a shift in their portfolio is to think of your investments as just one aspect of your overall financial solvency. If you’re going to take a smaller position in stocks, what else in your financial life may need to be adjusted to offset this potentially smaller nest egg? Do you need to save more in an emergency account?

Delay retirement? Take out a long-term disability policy?

“If you’re revisiting asset allocation, then you should just revisit everything on your financial checklist…all the things that are there to protect your income and assets,” says Jariwala. “Make sure you’re buttoned up.” — Bloomberg

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