Earlier this week, shares fell for free. The Dow fell nearly 1,600 points, the worst decline in history in a trading day. At the time of writing, the stock market has recovered about half of its losses. But has this alarming decline led you to ask baby boomers if you should stay invested in the stock market?
If so, the short answer is that it depends on your age.
The good news: younger baby boomers have no reason to worry about correction, says Kyle Woodley, senior investment editor at Kiplinger.com. Remember, the stock market crash of 2008 had a recovery time of six years.
“If you’re between the ages of 50 and 60, there’s still time to recover,” says Woodley in a MarketWatch article. At what age should you be most concerned about a stock market recession? “Fifty years ago, life expectancy was much lower. Don’t invest in the next 5 or 10 years, invest in the next 20. You have room to grow your nest egg and participate in that growth. Half a century ago, you would have been in two-thirds bonds in the 1950s. That is no longer the case. “
Financial guru Suze Orman agrees. “If you’re saving for retirement or another goal that has 10 or more years off in the future, you should be happy that stock prices have dropped,” she says. “When stock prices are lower, the money buys more shares. And then you hold more shares for when the stock prices come back.”
A basic rule for retirement money that you might consider is to keep your age in safe investments, she adds. “So, if you’re 60, you could have up to 60% in CDs or short-term treasuries, and the rest can be left with shares.
Keep in mind that as the market has grown over the past eight years, you may need to rebalance your pension portfolio to ensure that your investments are aligned with risk tolerance. Otherwise, you could lose a lot more money if the market collapses.
What if you are older and plan to retire in the next five years – or maybe you are already retired and withdrawing from retirement funds?
Some older boomers may have more to worry about: Jared Snider, a senior wealth advisor at Exencial Wealth Advisors in Oklahoma City, says your risk depends on how well you prepare for a recession. “Those people who have not prepared are the most affected by it. It can do irreparable harm. They are sold out of fear or necessity, because they have no other assets to liquidate.”
In general, experts agree that you should not invest anything you need in the next five years. This way, you will avoid taking out all your money during a market recession that, historically, has always come back.
“If the market collapses, you’ll need to be able to escape the storm, rather than sell everything in a panic,” Katie Brockman wrote in a CNN Money article, How to Protect Your Retirement Savings from a Crash . “By investing only money that you know you won’t need for at least five years, it will be easier for you to leave these savings untouched until the market recovers.”