Staying Balanced: How to Protect Your Retirement Savings

As markets go up and as markets go down, your retirement savings likely needs to be adjusted i.e. rebalanced, for the ebbs and flows. Recently we have experienced a nearly 45% rally in stocks over the last 18 months (S&P 500 12/31/22-6/30/24), if you have not rebalanced your 401k, you are likely overweight in stocks compared to your intended allocation and risk profile. You may be unintentionally risking more of your hard-earned savings than intended. Warren Buffet once said, “Only when the tide goes out do you learn who has been swimming naked.” Although Warren’s intent was directed at investors taking huge risks, it’s applicable here.

Rebalance your 401k periodically so you are appropriately invested to weather the ups and the downs.

For example, if stocks rose 30% and bonds 2% in a given period and your portfolio was 50% stocks and 50% bonds, your ending portfolio would be 56% stocks and 44% bonds.

Why Should You Rebalance?

Think of your 401(k) like a garden. Over time, some plants might grow a lot while others not as much. Rebalancing is just like tending to your garden to make sure everything is evened out so one area isn’t overwhelming the others. Here’s why it’s a good idea:

1. Keep Things Steady: If one type of investment is growing faster than others, it might start to take over your whole 401(k). Rebalancing helps keep your long-term plan on track, matching the level of risk you’re comfortable with, and keeps your asset base diversified.

2. Smart Buying and Selling: Without trying to guess the market, when you rebalance, you naturally sell a bit of what’s high and buy a bit of what’s low. This can potentially enhance your returns over the long run by systematically taking profits from higher-performing assets and reinvesting them in areas that have not performed as well.

3. Stay on Target: Your personal financial circumstances and goals may evolve. Rebalancing ensures that your investment strategy continues to reflect your current financial objectives and timelines.

How Do You Rebalance?

· Review Your Current Asset Allocation: Check how your funds are currently distributed across different asset classes (e.g., stocks, bonds).

· Compare Against Target Allocation: Measure this against your target allocation that was designed to meet your risk tolerance and investment objectives.

· Make Adjustments: Buy or sell investments to move your portfolio back to its target allocation.

When to Rebalance:

It's generally recommended to review your 401(k) and consider rebalancing it at least annually or after significant market movements. Some plans offer automatic rebalancing features that can simplify this process.

Closing Thoughts:

Van Hulzen Financial Advisors offer Advisory Services for qualified retirement plans to businesses of all sizes. If you are in need of setting up a retirement plan for your business or are interested in knowing more on how we can help serve your existing retirement plan, please reach out.

Lastly, if you are a business owner and juggling business finances and personal finances (including your saving/retirement strategy) we are here to help and be a trusted partner on both fronts. Consulting with a financial advisor is crucial to receive personalized advice tailored to your unique financial situation. Let us focus on you, so you can focus on what matters most.

*The foregoing content reflects the opinions of Van Hulzen Asset Management DBA "Van Hulzen Financial Advisors" and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.