Today, I’d like to CONCLUDE OUR SERIES on the topic of “Retirement and Falling Interest Rates?”
And, I’d like to end by zooming out a bit to emphasize Staying focused on what matters: To avoid common missteps in a falling rate environment, I encourage my clients to take a step back and look at the bigger picture. Instead of focusing on the Federal Reserve or what your brother-in-law is saying, investors should instead focus on the factors that should always determine their portfolio allocation. This includes one’s time horizon, risk tolerance, and goals.
For example, if you need the funds within a few years, then using a savings account, money-market fund, or short-term CDs will always make sense regardless of the drop in yields. Investors should not risk the money they need for near-term expenses to get a higher yield.
If an investor is approaching retirement, having some money in cash equivalents and high-quality bonds for a couple of years’ worth of expenses makes sense. However, it also makes sense to have exposure to stocks to grow your portfolio over time to combat inflation and help ensure that you don’t outlive your funds. Where rates are, and whether they will drop further, are immaterial to this reality.
Staying focused on yourself and your goals instead of the latest headlines and what others are doing is always the best approach when it comes to one’s finances.