I recently received a couple of good questions from my NECN viewers, both of whom are nearing their financial goal line, an area known by football fans as the "red zone."
One e-mailer asked, if her child was a teenager, was there a particular strategy to follow with the youngster’s college account money?
Any child who is already a teenager is certainly within six years of starting college. Six years is a good checkpoint to begin a transition strategy with college funds. Start reducing stock holdings when the countdown to college reaches six years, or simply when your kids celebrate their 13th birthday.
The bonds and cash or near-cash holdings you transition to will have greater value stability and help guard against a value crash in volatile stocks just when you need the money most – on the first day of college classes.
The other question came from a writer who is getting ready to retire, and wondered if they need to change the character of their investments. In a turbulent market like the one we’re living through now, many people might be asking that question, even those who aren’t retiring.
Yes, if you’re nearing retirement age, your asset allocation should be adjusted. This change is necessary to help guarantee that downward stock volatility won’t sap the value of your retirement account – over the long term, not because of a queasy short-term market. Remember, you’ll be drawing income from your retirement accounts, and you’ll want interest-earning investments that are generating steady cash flow for you.
But for anyone, whether nearing retirement or not, chasing markets is a dangerous game. Even under the best of circumstances, if you’re in your 60s, there are going to be a few recessions between now and the end of your retirement. Make the allocation adjustments because of your retirement timeframe, not because of the market.
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