1. Focus on planning rather than transient market moves.
Considering the current market conditions, it's crucial for retirement-focused clients to maintain a perspective that transcends immediate market movements. Our guiding principle during these times is simple: Focus on comprehensive financial planning.
Our approach is rooted in the understanding that markets will fluctuate while geopolitical events and economic cycles continue to evolve. It is here that the true value of a meticulously crafted and curated long-term financial plan comes to light.
If the modeling shows that a plan remains viable over the long term, immediate market conditions, while noteworthy, do not warrant undue concern or action from a client. In practice, we have retired hundreds of clients before, so it's not an unfamiliar path for us.
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Brad Brescia, senior financial advisor at Moisand Fitzgerald Tamayo LLC in Orlando, Florida
2. Mind sequence risk and project cash-flow needs, but don't shun stocks.
Our advice is always very boring and fundamental: The portfolio should be driven by the financial plan.
We also work to understand our clients' cash-flow needs many years into the future, which helps us invest to protect against short- and long-term risks. This allows the overall portfolio to remain invested conservatively where needed.
With pre-retirees frequently being concerned with longevity, investing in equities is critical to ensuring that assets remain available later in life. This is why insurance products and pensions, while effective at protecting against sequence of returns risk, are not always great at protecting against inflation in the long term. They must be accompanied by higher risk assets to protect against inflation.
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Derek Thompson Williams, financial advisor at Veratis Advisors in Cary, North Carolina
3. Systematic rebalancing helps keep risks in check.
I review my clients' portfolios at least once a quarter and rebalance them if they are out of balance — selling equities at a high, relative to bonds, and buying bonds at a relative low to equities. It's sell high, buy low.
When markets are doing well, I certainly celebrate this with my clients but also am sure to remind them that we do not expect returns to always be this high. It's typically in a down market when clients want to de-risk their portfolios and shift their target asset allocation more toward bonds, which is not ideal — selling at a low. I try to encourage my clients to wait for a market rebound before making any changes.
For my clients who are approaching retirement, this is the time that I'm talking to them about taking some of the gains off the table and moving to a slightly more conservative portfolio.
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Carla Adams, founder and financial advisor at Ametrine Wealth in Lake Orion, Michigan
4. Know in advance when to take profits.
I believe it is a prudent risk management strategy to have predetermined targets at which to take profits in client's portfolios. In our practice, that does not always mean reducing total equity exposure. For us, it is a blend of rotating between sectors as well as reducing equity exposure if needed.
Currently we are "taking chips off the table" in large cap growth and replacing them with exposure to large cap value, energy and utilities, as well as increasing clients exposure slightly to 7- to 10-year U.S. Treasurys.
We believe a 5% to 10% correction is likely in the short term and are preparing clients accordingly.
In addition, we believe it to be a good exercise to "train" clients to take profits systematically as it creates comprehension around how to harvest funds from investments as well as desensitizing the client for circumstances in which they need to produce income from the portfolio.
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Eric Amzalag, financial advisor at Peak Financial Planning in Canoga Park, California
5. Maintain an emergency fund and stay balanced.
We are advising clients to remain disciplined with asset allocation exposures, continue to rebalance and have an emergency fund to use during a potential market downturn.
During periods that the market performs well, it can be easy to chase returns and only look to add to what has done well recently. That has primarily been large-cap U.S. equities in 2023 and early 2024 — specifically large-cap growth.
Having discipline around target exposures and using a rebalancing strategy to avoid over- or under-exposure combined with a healthy emergency fund to help weather a market downturn is key.
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Michael Dunham, director of planning at Fontana Financial Planning in Dallas
6. Accept the trade-offs of long-term investing.
When meeting with my clients, I remind them of one of my favorite quotes from Thomas Sowell: "There are no solutions. There are only trade-offs. You try to get the best trade-off you can get; that's all you can hope for."
I explain to them that now might be a good time to start locking in some longer-interest bonds at an attractive rate. The trade-off would be potentially missing out on larger gains in stocks or the risk that inflation increases again soon.
After helping to analyze the client's specific situation, risk tolerance, risk capacity and goals, we can help them review all of the pros and cons so they can make an informed decision on how to allocate their assets for the future. Now that bond interest rates are back to a more normal range, it does make it easier for clients to get rewarded for taking some risk "off the table."
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Heath Biller, financial advisor at Fiduciary Financial Advisors in Grand Rapids, Michigan
7. Stress testing and emergency reserves relieve a lot of worry.
A financial plan combined with a long-term diversified asset allocation is the backbone of a strong client relationship. All plans and investment allocations are stressed for such metrics as client longevity, equity allocations and unfavorable market conditions.
Ideally, long-term asset allocations are set at a client's comfort level from day one, and that equity allocation is supplemented with ample quality fixed income reserves or high-yielding cash assets that may cover years of spending.
The sleep-at-night fund allows clients to stay invested for the most part and let strategic rebalancing keep equity allocations and fixed income allocations at predetermined levels, based on a successful financial plan. This helps avoids the need to "take chips off the table" unless a specific cash arises.
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Dan Pinheiro, wealth manager and founder at South Coast Planning in Fall River, Massachusetts
8. Be extra careful with portfolio weights.
I've been taking some chips off the table in light of the stock rally, but only in the form of rebalancing client portfolios back to their target asset allocations. With the S&P 500 up more than 30% in the trailing year, and the Aggregate Bond Index and the Bloomberg Commodity Index both close to unchanged over this same time period, many clients are now likely to be overweight in the former and underweight in the latter two asset classes.
I suspect that, with U.S. stock valuations as elevated as they are, some sectors of the bond market will provide competitive returns relative to domestic equities going forward, and especially on a risk-adjusted basis. Not to mention that retirement-focused are particularly sensitive to sequence-of-returns risk. So, reducing exposure to more volatile, less-income-generating asset classes in favor of less volatile, more-income-generating asset classes (like bonds and even cash) also serves to mitigate this risk.
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Paul Winter, president and advisor at Five Seasons Financial Planning in Salt Lake City
9. Learn from history and stay diversified.
Our retirement-aged clients understand that being too conservative in cash will not help them pay their bills nor keep up with inflation and taxes over time, especially when the Fed starts cutting rates. From 2008 through 2022, when the federal funds rate was near zero, retirees were forced to find other means of income and returns that were not cash weighted.
At the same time, our clients understand that going too far into stocks and chasing returns — or reaching for high-dividend investments or alternatives — can get them into hot water. It's critical for investors to focus both on the return "on" their money as well as the return "of" their money with every purchase.
We remind our clients in every quarterly service meeting that the best elixir to market volatility while helping to meet their long-term goals is to stay diversified. To address sequence risk, we recommend bucketing or dynamic withdrawal strategies.
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Jon Ulin, advisor and CEO at Ulin & Co. Wealth Management in Boca Raton, Florida
10. Accept the complicated outlook and stay objective.
We are in an unprecedented period where pandemic-related policy has created this complicated web of variables that are affecting the economy and financial markets differently than ever before. So, today, I'm trying to stay as objective as possible with clients.
To start, bond yields are still reasonably attractive by recent historical standards. I think a lot of retirees are falling for the trap of loading up their bond portfolios with short-term bonds as the yield curve is inverted. I’m generally trying to encourage these people to extend maturities for money that's not needed in the short term.
As far as cutting risk is concerned, I'm generally not encouraging retirees to do so, unless they're truly losing sleep and are at risk of acting emotionally should stocks sell off. I'm also spending time explaining the difference between different types of risk assets.
The principle of diversification is also incredibly important to reinforce during times like this.
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Michael Carbone, financial advisor with Eppolito Financial Strategies in Chelmsford, Massachusetts
The S&P 500 index topped 5,200 for the first time last week, underscoring the stock market recovery that has been enjoyed by investors following the pain and turbulence of 2022 and early 2023.
Since just October, the index has climbed 26%, and some market watchers think the 5,400 mark could be struck by the end of 2024. Their reasoning? Speculation that the end of the most aggressive Federal Reserve hiking cycle in a generation will keep fueling corporate America’s profits at a time when technology innovation and a strong labor market are propelling essential parts of the U.S. and global economy.
Of course, naysayers worry that the fresh market highs are being fueled by irrational exuberance and a reluctance to buy into the Fed’s 2% inflation target. Such experts warn about an ongoing tug-of-war between optimistic investors who foresee a soft landing for the U.S. economy, and the leadership at the Fed, which is determined to reduce inflation to its historical norms even at the cost of a recession.
This creates confusion for wealth managers and their clients, especially in positioning retirement portfolios and right-sizing risk levels carried by late-career workers. One risk is missing out on potentially significant gains in the months ahead, and another is seeing near-retirement clients’ portfolio values pop and deflate alongside a broader market bubble.
See the accompanying for advice from 10 advisors on the best moves they’re making for clients in or near retirement amid the repeated market highs of 2024. Some answers have been edited for length.
