Soaring stock valuations, a contentious presidential election, and global economic weakness are likely to create near-term volatility and downside risk, so these considerations are extremely salient right now.
Unfortunately, retirement asset planning is more complicated than replacing all of a portfolio's stocks with bonds. Equities cannot be abandoned entirely, because growth is still required to get through the later years of retirement. Inflation erodes buying power each year, so a dollar may only go 80% as far a decade from now. Stock prices generally rise over time with the prices of consumer goods, making them an accepted form of protection against inflation risk. As a result, 401(k) accounts still need equity exposure, even if a retiree has already begun making withdrawals.
Interest rate risk is also relevant today. Investors who rely on income from bond interest obviously depend on the rates yielded by those bonds. Rates that fall too low affect a retiree's ability to pay bills and live the life they've planned. Interest rates are near historical lows in 2020 with the Fed indicating its willingness to keep things this way for as long as necessary to support the economy. Rates may not have much further to fall, but risk mitigation can still be accomplished with diversified bond maturity dates. Some asset managers have also turned to dividend income within their equity holdings to provide more income, though this could negatively affect growth down the road.
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How Pre-Retirees Should Be Thinking About 401(k) Allocation in 2020 - North Platte Telegraph
Recommendation and review posted by G. Smith
