Rebuilding Your Portfolio
My retirement portfolio is down with the rest of the stock market. What can I do now to keep my long-term plan on track?
* * *
While the stock market volatility is affecting investors, you may be able to take some steps now that can benefit you when the market recovers.
First, resist the urge to sell assets that have fallen in value due to the recent market volatility. Doing so will lock in losses that for now are “paper” losses, or those that have not yet been realized through a sale of the asset. And, if you plan to reenter the market at a later time, you may be buying back these stocks or funds at higher prices.
Even if you plan to retire in the next several years you are still a long-term investor. A healthy individual who retires at 65 can expect to live as long as 25 years, and needs retirement income to last at least that long.
Also, remember that you allocated money to stocks as part of a diversified portfolio for a good reason. Historically, stocks have outperformed other asset classes and have recovered from steep drops over time. Based on bear market and post bear market returns of the S&P 500 between 1900 and 2002, the average bear market has lasted 12 to 15 months with returns decreasing by 27% to 33%; it has typically been followed by a bull market which, in contrast, lasted an average of 4 to 4.5 years and enjoyed a total return of 140% to 160%.
Of course, past performance is no guarantee of future results and diversification cannot eliminate the risk of investment losses.
Consider saving more to get back on track. You can increase your contribution to your employer-sponsored retirement accounts if you're not already contributing the maximum. For 2011, investors can contribute as much as $16,500 to a 403(b) plan. For 2012, investors can contribute up to $17,000 to a 403(b) plan. For both 2011 and 2012, investors age 50 and over can set aside an additional $5,500 more in "catch-up" contributions.
You can also considering opening or contributing to an existing Traditional or Roth Individual Retirement Account, or IRA. Investors can contribute as much as $5,000 for both 2011 and 2012, or up to $6,000 for those age 50 and over.
Still, the market declines may have left you feeling that too much of your money is invested in one asset class. Generally you should reduce your exposure to equities as you get closer to retirement. You may want to increase your holdings in investments such as real estate and bonds, which are generally less volatile than stocks. Although diversifying your assets isn't a guarantee you won't lose money, it is an effective strategy to help you manage investment risk.
Our advisors can help you rebalance your portfolio. TIAA-CREF's advice is objective and non-commissioned1, and Forbes called our advice offer as “the most extensive personalized workplace advice.”2
It may also be worth considering investing some portion of assets in a low-cost annuity that guarantees income for as long as you live. For example, the TIAA Traditional account guarantees your principal and a minimum interest rate, plus it offers the opportunity for additional amounts in excess of the guaranteed rate.3
TIAA Traditional has credited additional amounts of interest every year since 1948.4 Each participant dollar applied to the account purchases a guaranteed amount of lifetime annuity income, paid to participants when they annuitize. Under most TIAA Traditional Annuity contracts, the minimum guaranteed interest rate during the payout phase is 2.5%. As in the accumulation phase, this guaranteed minimum rate may be supplemented by additional amounts declared by the TIAA Board of Trustees on a year-by-year basis.
View our prospectuses here.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877 518-9161, or go to www.tiaa-cref.org for a current prospectus that contains this and other information. Please read the prospectus carefully before investing. All TIAA-CREF investment vehicles are subject to market and other risk factors, which could result in loss of principal.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY Advice and Planning Services is a division of TIAA-CREF Individual & Institutional Services LLC.
1 Our advisors receive no commissions. We compensate them through a salary plus incentive program that rewards client service as well as financial results.
2 “Playing the Numbers,” Forbes 2009 Retirement Guide. This claim should not be seen as an endorsement by Forbes.
3 Eligibility and liquidity restrictions may apply. Guarantees are based on the claims-paying ability of TIAA. TIAA Traditional is a guaranteed insurance contract and not an investment for Federal Securities Law purposes.
4 There is no assurance that additional amounts will be declared in future years.