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Protecting Your Nest Egg From Market Woes


As the Dow plummeted more than 600 points Monday, many retirees saw their nest eggs take a hit. The nosedive was even more troubling to retirees who are no longer working, and therefore aren’t adding new money to their savings. But while there are no magic bullets for protecting your assets, experts say there are steps you can take to limit the damage.

First and perhaps most importantly, don’t panic, say investing pros. While it’s tempting to pull money out of the stock market when it’s falling, it can often lead to bigger losses. A new study from Morningstar found that investors who try to time the market end up with significantly smaller retirement savings than buy and hold investors. Other research has shown that most of a portfolio’s performance is determined by asset allocation, not market timing.

The recent market swoon also drives home the need for diversification.  “Balance is an investor’s best friend, says Wes Moss, chief investment strategist at Capital Investment Advisors in Atlanta. “Practice it in good times and in bad.” Some advisers recommend equity exposure equal to about 120 minus your age. For example, a 70-year-old would have 50% of assets in stocks;  the remainder goes to bonds, certificates of deposit and other income-generating investments. Moss, however, recommends his retired clients’ portfolios have at least 50% of its assets in non-stocks, including TIPs, iBonds and floating-rate bonds.

For the stock portion of your portfolio, retirement experts recommend index funds and mutual funds that spread your bets across many sectors to better withstand market shocks. Also, add international stocks and mutual funds, as well as small, medium and large cap stocks across a variety of sectors like health care, technology and telecom, Moss says. Click here for more strategies on weathering a rocky market.

Finally, Moss points out that it’s important for retirees to make sure they have enough income-generating investments, such as dividend-paying stocks and bonds, in their portfolios to help weather a market drop without use savings.


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    • I have read these recommendations to make sure you have international exposure in your portfolio with interest. While this seems to make sense, look at the data. I have spent some time yesterday comparing a few different mutual funds / ETFs that are “international” with the performance of the S&P 500 the past few years, and my eyeball sees no significant difference between the performance of the international and the domestic portfolios. In fact, even with the deterioration of the dollar against the euro and other currencies, where I would have expected the international portfolio to give some advantage. So, if one could have protected themselves from “market woes” by having more international exposure, I’d like to see some SPECIFIC examples that the average investor could have reasonably foreseen and taken advantage of.

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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.