Here’s what to do with your retirement savings when markets are shaky

The stock market can deliver a jolt when we least expect it. April 10 was no different.

US consumer prices came in hotter than expected in March, according to the latest data from the Bureau of Labor Statistics. The Consumer Price Index rose 0.4% over the previous month and 3.5% annually, an acceleration from February’s 3.2% annual gain in prices.

That news shook many investors who jumped on the “let’s sell stocks” train. The result at day’s end: The Dow Jones Industrial Average (^DJI) was down 1.1%, and the S&P 500 (^GSPC) was down nearly 1%.

Underlying that rush to unload shares was the looming concern that inflation might be back on the run and the Federal Reserve may not cut US interest rates as much or at all this year. US stocks teetered again on April 11 after another economic report, the Producer Price Index, reported a smaller increase than anticipated.

None of these things are in your control.

It may have been just a blip, but if inflation doesn’t cool, pushing the Federal Reserve to delay interest rate cuts for longer, the market may clam up again.

Then what? I talked to several experts about whether it’s best to stay the course or consider making some adjustments to retirement-targeted holdings.

Here’s what to do with your retirement savings when the markets are shaky.

Focus on long-term goals

Last year was pretty sweet for many Americans’ retirement savings account balances, with the S&P 500 up 26.29% and the Dow industrials up 13.7%.

So you can be forgiven if this week’s fluctuations have left you spooked — and unsure what to do.

“It’s a fine line with how investors should respond to volatility,” Christine Benz, Morningstar’s director of personal finance, told Yahoo Finance. “On the one hand, they mainly should tune it out and not be reactive. But on the other hand, it’s easy to get complacent, especially given that stocks’ performance has been exceptionally strong for the better part of the past 15 years.”

Benz said that for investors holding stocks, the contents of their portfolios have shifted, even if they haven’t actively added to them. For example, a portfolio that was 60% stocks and 40% bonds in 2019 would have been 70% stocks and 30% bonds at the end of 2023 simply because the value of the stocks increased so much, she said.

“Meanwhile, bond and cash yields have improved a lot, in turn improving their return prospects,” Benz added. “And we’re all five years older, and many retirees want a more conservative asset mix as they age.” So retirees, in particular, who haven’t revisited their asset allocations for a while, should consider doing so, Benz said.

Financial advisers generally suggest rebalancing (adjusting the mix of your stocks and bonds) whenever your portfolio gets more than 7% to 10% away from your original asset allocation, which was constructed to match your time horizon, risk tolerance, and financial goals. To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So, a 60-year-old would have 50% in stocks and the rest in bonds and cash.

If you’re itching to do something major, though, tread lightly.

“It is very difficult to time the markets,” Marguerita M. Cheng, a certified financial planner and CEO at Blue Ocean Global Wealth in Gaithersburg, Md., told Yahoo Finance. “You may know when to get out of the market, but you may not know when to get back in. It’s very hard to be right twice.”

If you’re setting money aside automatically in your employer-sponsored retirement plan, or you have automatic contributions to a Roth IRA or a traditional IRA and are years from retirement, take a breath.

“You’re constantly investing when the market is high and when it is low, and that means whether the market moves up or down, the performance of your investments even out over the long haul,” Cheng said.

If you have a target date fund or a static asset allocation fund — one that’s deemed conservative, moderate, or growth — the fund manager will adjust the portfolio and rebalance for you, Cheng added. Those portfolios are automatically rebalanced since they are tied to an estimated retirement year (such as 2055 or 2060) and, therefore, tick more conservatively as the years go on.

The bigger issue is not what goes down this week, but what happened in the last year. With the run-up in stocks last year, your investment portfolio might be out of whack in terms of diversification with a balance of cash, stocks, and bonds, or stock and bond funds.

Time for your annual checkup

This is an opportune time to think about financial planning and long-term goals. That could include a new look at your rebalancing strategy, Cheng said.

“You’re not going to sell everything; you’ll only pare back to ensure your 60/40 portfolio isn’t 65/35 or 67/33,” she said. “Rebalancing your portfolio can help you have risk alignment, which means assuming the appropriate level of risk tolerance and risk capacity.”

For example, if you’re worried about a major market sell-off hitting just as you’re on the edge of retirement, it could be a good time to rebalance your retirement portfolio so you have some cash and take profits on some of your stock appreciation. This will serve as your safeguard during the first few years of your retirement. If the market drops, you won’t have to sell stocks at a loss to cover your living expenses.

“Stocks have a market risk, but for long-term investors, you do want to make sure that you stay invested in stocks,” Cheng said. “And by the way, everyone, even someone who is retired today, is a long-term investor.”

Bonds have to be in the mix, too

The current high interest rates of fixed-income investments mean it’s a good time to move some of your assets from high-risk stocks to low-risk fixed-income investments, such as Treasury securities and CDs, Ken Tumin, a senior industry analyst at LendingTree and founder of DepositAccounts.com, told Yahoo Finance. Those yields have fallen a bit in recent months, but they remain high compared to previous years.

“With inflation and the economy making it difficult for the Fed to lower rates anytime soon, Treasury bills/notes and bank CDs should continue to offer yields higher than what we’ve seen in more than a decade,” Tumin said.

In fact, some certificates of deposit and high-yield savings accounts are paying more than 5%. The most appealing CD rates — offered mostly by online banks — were recently hovering above 5.5% for a one-year certificate.

And with the Fed likely to delay rate cuts for a while longer, yields on longer-term bonds may have some appeal.

“In short, do we have an opportunity, before rates start heading down and bond prices go up,” Lisa A.K. Kirchenbauer, the founder of Omega Wealth Management in Arlington, Va., told Yahoo Finance.

The message from all of these advisers is plain: Do not make rash moves, but retirement accounts may need a little fine-tuning. It never hurts to check.

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.