As you have no doubt seen, lawmakers have yet to arrive at an agreement to lower the deficit and in turn allow the debt ceiling to be raised before the August 2nd deadline. While the delay in a deal is concerning, the market has collectively shrugged its shoulders. The 10 year treasury remains near historic lows and the U.S. stock market remains within shouting distance of its post financial crisis high reached at the end of April. Global investors have not shown much concern for the issue, but the prospect of a default is ominous.
When looking at this issue its important to consider that a retirement plan is very long term, whereas the debt ceiling debate is temporary in nature and, after much wrangling in Washington, will get resolved. Thus, a retirement portfolio should not be revised to react to short term issues in the market. It’s imperative to establish an overall risk tolerance and strategy for a retirement portfolio that reflects its long term goals. Making drastic adjustments to ones portfolio can throw your long term plans off course. If a move to a very conservative portfolio is made one might find them self woefully unprepared for retirement. In addition, trying to time the market usually has negative results.
It is our recommendation that a retirement investor diversifies their investment portfolio broadly to reduce risk and establish a target allocation based on one’s risk tolerance and goals. This should include asset classes such as U.S. equity, international equity, both developed and emerging, fixed income, and real estate, and can include commodities such as precious metals and energy as well. It is important to remain diversified amongst these investments and to not become too concentrated in one corner of the market. An investor that maintains their portfolio’s allocations close to their targets and adjusts the allocations as they move closer to retirement can expect a higher probability of achieving their retirement goals.
By taking a long term view of one’s investment portfolio they can stay the course despite any short term fluctuations in the market.