What is the best way to lock in current market gains, while also beating inflation rates?

With the market at an all time high, what is the best way to lock in some gains, while also keeping sufficient funds in stocks to beat inflation rates? We have 58% of our portfolio in stocks. We plan to retire next year and expect to draw 3-4% from our 401(k), in addition to our Social Security. This will account for about 70% of our pre-retirement income, which is sufficient for our lifestyle.

Social Security, 401(k), Stocks
Sort By:
Most Helpful
last month
50% of people found this answer helpful

Good question, but I would suggest it's a fear based question.  It's not a question of "if" stocks will have a pull-back, it's "when".  Investing in diversified portfolios of stocks can be a great long term strategy, and can continue to be in this case for you as you enter retirement. The question is, does it really matter to you if and when the market pulls back.  For example, if you have 42% of your portfolio in bonds and can live off 3-4% withdrawal from this amount, who cares if the stock portion of your portfolio has a two year decline?  You could simply take your withdrawals from the cash and/or bond portion of your portfolio while you wait for the stocks to recover.  The only issue is that you might not "feel" good in the 1-2 years when the market was down because you remember how high your balance was.  But, to your point, you aren't liquidating your balance anytime soon - only at a 3-4% rate over time, so you can easily weather the short term fluctuations of your stock portfolio.

If you were my clients, I would probably recommend that you allocate slightly more to stocks unless that would make you completely panic.  The point is, stocks are great long term investments IF you can emotionally handle the interim volatility that will always happen in that market AND you have enough money so you don't HAVE TO withdraw when the stock market is down.  Big emergency fund and appropriate allocation to bonds/defensive is good.  All the general rules of thumb are overly simplistic and it depends on the person.

Hope that helps and have a great Christmas and holiday season!

last month
4 weeks ago
last month
last month