Protecting Your Retirement Portfolio in a Bear Market | ETF Trends

The market downturn has put many investors saving for retirement on edge, wondering if they should change their investment strategy — and if so, how. But Christine Benz, Morningstar’s director of personal finance and retirement planning has some advice for investors nervous about bear markets, no matter what stage of the game they’re in.

For investors under 50 still in the accumulation phase of saving for retirement, Benz said in a video interview conducted by Morningstar’s director of content Susan Dziubinski that the contribution rate “is going to be the main determinant of your plan’s success or failure.” Fortunately, the same contribution rate in a down market lets investors purchase more shares than they could have in a bull market.

Investors in the early stage of saving for retirement should also “check [their] asset allocation and make sure [they] have a plan for rebalancing back to that target asset allocation.” Benz recommends a target-date fund to keep a portfolio’s asset allocation on track on an ongoing basis since rebalancing is built into such a fund.

“If you’re not using an all-in-one product like that, just make sure that you have a system for rebalancing,” Benz said. “And rebalancing basically means that you’re stepping up your exposure to the asset classes that have dropped. For most portfolios, stocks have dropped the most, recently.”

Older investors who are closer to retirement should also consider raising their contribution rates since those additional contributions can still compound and make a difference in their plans.

“At this life stage, if you’re in your 50s or early 60s with retirement on the horizon, you generally want to be looking for balance in your retirement portfolio,” Benz said. “So, you absolutely need stocks for long-term growth, but you also need some safer investments in your portfolio. So, you want high-quality short and intermediate-term bonds.”

She added that it’s not “too early to start building up some cash reserves.”

Retirees who are already drawing from their portfolios will want to focus on what they can control. One thing they can control is their withdrawal rates. They should also look at their asset allocation and think about where they’re going for those withdrawals.

“I like the idea of retirees holding some cash, some high-quality short-term bonds on an ongoing basis to help meet those income needs on an ongoing basis,” Benz said. “I think that that’s the linchpin of a Bucket-type strategy. That’s a good starting point when thinking about how to structure your in-retirement portfolio.”

Also in a bear market, options-based ETFs could be something for investors at any stage of their retirement savings journey to consider. Option-based ETFs are geared to either protecting investors from losses in a down market or providing supplemental income to another investment strategy.

Nationwide offers a suite of actively managed ETFs within equities for financial advisors. These funds include the Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI), the Nationwide S&P 500 Risk-Managed Income ETF (NSPI), the Nationwide Dow Jones Risk-Managed Income ETF (NDJI), and the Nationwide Russell 2000 Risk-Managed Income ETF (NTKI).

For more news, information, and strategy, visit the Retirement Income Channel.