You’ve lost some money…now what

You’ve lost some money…now what?

by Chris Renner

Remember the good ol’ 20^th century…aaaah, those were the days.&= nbsp; Everything was set. Ci= sco was at 70 and climbing, The Janus Fund was up 95%. Even your prediction that Y2K was going to be a big dud turned out to be right. Nothing could stop you now. Heck, you even told the kids that = they wouldn’t have to support you in your old age. Why wait until 60 to retire? Why not 55? Or even 50? Life… was… GOLDEN!

… and then something happened.

It is very likely that the stock market in the 21^=
st century has not yet been kind to you. Your nearly triple digit gains have evaporated and now all your retu= rns are shown in red! You’v= e been waiting for a return to the late 1990’s but the period between tulipm= ania and “irrational exuberance” is over 400 years. You may have to wait a while.

So now it’s 2003, Cisco is at 13, the Janus Fund= is just another mutual fund, and Y2K has turned to YYY! How do you prepare for retirement = now?

In all likelihood, you probably have already deduced t= hat you may have to work a bit longer than you once excitedly hoped. Various surveys have shown that ab= out a third of respondents now plan to delay their retirement because of stock ma= rket losses. However, that is no r= eason to panic and hole up all your retirement savings in a money market fund. Depending on your age, here’= s how you can adjust.

IF YOU’RE OVER 50

However unpleasant it may be, workers in their 50̵= 7;s may need to view retirement as a “moving target”. Instead of 55, perhaps retirement = is now 59 or 62. Re-evaluate your as= sets and moderate your portfolio. = 70% stocks is much too high. With retirement assets sliced by a= third or more, consider the value of diversification. Don’t disdain stocks but loo= k at the merits of more fixed income securities and real estate. If you can, increase your annual contributions into your retirement plans. You may have to give up that trip= to Europe but an extra $20,000 per year is over $100,0= 00 in five years! Historically, a diversified portfolio will yield an annual return of nearly 8% annually, or nearly 50% appreciation in five years.&nbs= p; If this holds, a balance of $600,000 will yield nearly $300,000 in five years. You still have some time to recover, so don’t panic.

IF YOU’RE ‘TWEEN 40 AND 50

Consider yourself lucky. With the recent stock market demis= e, you may have lost lots of money but you still have twenty years to recover befo= re you retire. Depending on your= risk tolerance, a 70% stock portfolio is not unreasonable. However, diversification into valu= e and growth, U.S. and international, small, mid, and large cap stocks is essential to your lo= ng term retirement health. Money market funds do you no good if they only keep up with inflation.

UNDER 40

Years from now, you’ll be laughing about this re= cent burst of the stock market bubble. Compared to your older brethren, you came out of the 90’s relatively unscathed. You haven’t yet built up a sizable portfolio and as such, your losses were not as deep in actual monetary terms. Remember, a 20% loss on $100,000 is much better than a 20% loss on $1,000,000. Like 40 to 50 year olds, a portfolio heavily laden with stocks is very appropriate. In the long history of the stock m= arket, stocks still outperform bonds over every thirty year period imaginable. If you’re single with no dependents, a 100% stock portfolio makes perfect sense. Again however, consider the merits= of different types of equities so that you smooth some of the bumps along the = way.

If you’re not sure how to diversify your portfol= io, you may wish to hire a portfolio advisor or financial planner. You can try www.medcentriconline.com to f= ind a financial planner in your area. It’s a good way to take stock of many of your financial needs.=