Even President Donald Trump has not dismissed the risk of a U.S. recession. For starters, he is not afraid to admit that the economy is at a “moment of transition.” As investors continue to navigate through a period of economic uncertainty, financial professionals are encouraging a proactive mindset in order to protect investment portfolios. Even financial planners are worried about market timing with the chances of a recession increasing with the heat of a growing trade war. Charlie Fitzgerald III of Orlando is one of those warning that using it. Retirees, especially, are warned to keep a diversified portfolio so they don’t run out of money in old age.
According to a new Deutsche Bank survey, odds of an economic soft landing vs a hard landing are basically 50/50. That’s not all—the latest CNBC Fed Survey found an increase in the likelihood of a recession, from 23% in January to 36% in March. Despite these figures, Charlie Fitzgerald III, a certified financial planner and founding member of Moisand Fitzgerald Tamayo, cautions against rash decisions based on market timing.
"Market timing is a bad idea," Fitzgerald stated, emphasizing the need for investors to focus on long-term stability rather than short-term market fluctuations.
Retirees have special needs when it comes to ensuring they can sustain their savings over the course of a longer-lived retirement. Stocks serve as the growth engine of any portfolio, which is essential in helping one’s financial future last as long as they do. For those of us who don’t have that buffer of bonds and cash, we can take advantage of proactive planning while the economy is still strong. Christine Benz, director of personal finance and retirement planning for Morningstar, advises retirees to seek balance in their portfolios to mitigate risks.
"You're looking for balance rather than casting your lot with any one economic outcome," Benz said, highlighting the importance of diversification.
The track record is clear Historical data shows stocks always come back from their valley lows in recessions. This shape of recovery highlights the power of disciplined, durable portfolios to prosper even amid extraordinarily challenging period’s uncertainty. Fitzgerald echoes this sentiment, suggesting that although a recession may cause temporary discomfort, a properly diversified investment strategy can weather the storm.
"If you have a portfolio constructed well enough, [a recession] will be uncomfortable and the waves will toss [the ship] around a little bit, but the ship isn't going to sink," he conveyed.
For investors, the secret is sticking to a well-balanced and diversified portfolio so you’re prepared to weather that storm when it gets choppy. Although the S&P 500 returned around 26%, investors actually made only an approximately 21% return, according to DALBAR. This difference highlights the difficulty of trying to time the market and further emphasizes the importance of a diversified investment strategy.
Retirees need to accept that some portion of their portfolio should be in equities in order to take advantage of growth prospects. All while holding enough bonds and cash reserves for their own fiscal sanity. Taking proactive measures while economic conditions are good will help ensure this safety net will be there should we face another downturn.
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