Whether you’re retiring in 30 years or 5 years, you still need to do this one thing religiously

Choosing the right mix of investments isn’t easy for everyone. There are a variety of asset classes and fund options available, and the choices can be overwhelming even when the goal seems simple: to save money for the future. 

“The time to review your asset allocation and overall retirement investment strategy should be a proactive process throughout the year,” said Jon Ulin, chief executive officer of Ulin & Co. Wealth Management. “A major market crash and global economic event like COVID-19, could be a good ‘wake-up’ call and reminder to open your statements and update your investment and allocation strategy if you have not done so in a while.” 

See: Stressed about saving for retirement? Focus on your ‘bottom line’ 

Some retirement savers may opt for a target-date fund for their 401(k) plan or individual retirement account because this investment is tagged to an estimated year of retirement and automatically adjusts to become more conservative as a person ages. Others may have picked their own investment choices. 

Regardless of the strategy, investors should get in the habit of checking the asset allocation of their portfolios regularly — at least once a year. This task can be tied to the beginning of the year, the end of the year, a birthday or a special anniversary. 

As the stock market moves, the composition of an investment portfolio changes. Take for example a portfolio invested 50% in stocks and 50% in bonds. When stocks see tremendous growth, and bonds take a hit because of rising interest rates, that portfolio will reflect heavier weighting of the equities — thus, exposing itself to more risk, said Justin Shure, founder and wealth adviser at Endeavor Strategic Wealth. “Whenever there are big moves in an asset class, especially as we’ve seen recently, rebalancing can make sense,” he said. 

Ideally, you should know what your portfolio should look like — and that may involve reaching out to a financial planner or expert to help align these investments with your goals. If working with a financial planner isn’t an option right now, there are in-house advisers at the firm housing your retirement account, such as Fidelity Investments or Vanguard, and they can walk through investment options and construction of the retirement savings portfolio.

Some savers may want to check their accounts and rebalance more frequently than once a year, such as once a quarter or when their account is a certain percentage above or below their target allocations, said Rob Greenman, lead adviser and partner of Vista Capital Partners. 

But don’t overhaul your investing plan based on short-term events, such as market volatility linked to GameStop earlier this year, or the political climate. “The most important thing is to simply choose a strategy and stick with it,” Greenman said. “Allocations can and should be reviewed periodically to ensure the plan remains appropriate, with revisions made primarily in response to changes in specific circumstances (change in goals, objectives, or time horizon) and rarely in response to current market conditions.”

Have a question about your retirement, including where to live? Check out our ‘Help Me Retire’ column

Other times to rebalance or check in on an asset allocation is when there are changes to a personal situation, such as income and cash flow, said Jodi Viaud, a partner and financial adviser at Knox Grove Financial. “These changes may alter the risk that you should be taking on a portfolio,” she said. Investors should understand how comfortable they are with risk, which is their risk tolerance, as well as how much risk they need to attain their goals, known as risk capacity. 

“Managing your money to help meet your retirement and other long-term goals while assessing risk, should not involve emotions, darts, tarot cards or luck, like playing a roulette wheel in Vegas where the ‘odds are on the house,’” Ulin said. “[It] should involve a scientific approach to determining your willingness and ability to tolerate risk while taking control of your own results and financial future.”