How To Respond to Market Drops

Walter Updegrave recently received a question from a reader that lost over 10% of their retirement assets in the last few months (since June). The reader was wondering what they were supposed to do as they are 58 years old. Can he “wait it out?” Should he pull out and cut his losses? Walter outlines a “Retirement Home Stretch Investing Plan” that is better than his initial suggestion – pull it out and put it into a money market fund.

The Retirement Home Stretch Investing Plan is his recommendation for a stock-bond allocation that closely mirrors the 120 minus age rule. He recommended for the 58 year old near-retiree to:

Generally, though, someone your age should have roughly 60% to 65% of his retirement portfolio in stocks and the remainder in bonds. The stocks are there for long-term growth, the bonds for steady income and short-term protection. As you age, you would then gradually move more of your savings toward bonds, although even in your 80s and 90s, you likely want to keep 20% to 30% of your portfolio in stocks.

Fifty-eight minus 120 is 62… which is within the 60-65% range that Walter recommends. The bottom line is that there is no right answer since we can’t see the future so what can you do? Just make prudent choices, even if it is following a simple rule, and let the chips fall where they may.

The Home Stretch to Retirement [Money on CNN Money]