Should I sit tight and wait for the market to go back up?

I am only 2 years away from retirement. My 401k has taken a big hit because of the current "correction". Most of my investments are in stocks. Should I change my investments to bonds? If I do will this protect my 401k? I need to hold on to what I have left.

Retirement, Investing, 401(k)
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February 2016

Dear Reader, 

You pose a very good question. The recent market volatility has placed quite a few concerns with many investors. When reviewing one’s investment strategy, it is essential to look at a multitude of aspects including: your current asset allocation, your overall goals and objectives, risk tolerance, investment time horizon, and liquidity needs. It is also important to take into consideration total assets and liabilities, your income, and expenses. From here, it is easier to identify which types of investments are right for you in your current situation. So in short, my answer to your question is that in order to give you the best possible answer, I would need to know more information about your financial picture. 

Although you are two years from retirement, your retirement funds need to last you throughout your years in retirement. Markets as a whole, are a function of time. Timing the market is extremely difficult to do, due to the fact one must get it right on both the exit and re-entrance. Surely bonds will reduce your risk in your 401(k), but you also must consider the current rising rate environment, if these bonds will outpace inflation, and if they will ultimately yield enough to provide you the best opportunity to live the lifestyle you are either accustomed to living or would like to live in retirement. 

In conclusion, when investing, many tend to become emotionally tied to specific securities or their portfolio as a whole. Investors will benefit from the understanding that equity securities tend to outperform inflation and fixed income over the long run. Market conditions and your specific 401(k) scenario are great topics to discuss with an independent financial advisor/planner. After your advisor speaks to you on your specific situation, he/she can help provide you with a suitable recommendation on how to proceed.


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