23 Dec Should I pull back from stocks because of omicron?

Q. When the coronavirus pandemic started, I know the markets panicked and people lost a lot of money. I also know the markets came back. But here I am, a year from retirement, and I expect the omicron variant to continue to make the stock market nervous. Therefore, I’m nervous. Should I pull back from stocks since I’m retiring so soon, or should I ride it out? I’m at 75% stocks and 25% bonds and cash. Most of my money is in my 401(k). Thank you.
— Investor

A. You’re correct that the stock market has reacted strongly — in both directions — to all kinds of pandemic news.

There is no right strategy for any one investor.

You should consider several factors when deciding how much risk and stock exposure you want for your investments as you approach retirement, said Michael Cocco, a certified financial planner with Beacon Wealth Partners in Nutley.

First, he said, ask yourself if you have the ability to be patient, even in the face of a stock market selloff.

“During the stock market volatility in February and March of 2020, we all had a real-life exercise in patience,” he said.

Did you feel panicked and did you sell? Were you patient and did you ride out the storm? Or did you even look to be opportunistic and put additional money into stocks when they were at depressed levels?

How you felt and what you did should play a part in the level of risk to take as you approach retirement, Cocco said, noting the best plan is one that you can stick to.

You should also consider what your cash needs will be from your 401(k) when you retire, and whether you have other investments or cash that you will also use to meet your expenses, he said.

Same goes for a pension and Social Security, and do they cover your expenses?

Cocco said your time horizon — when you may need to withdraw the money and how much you will need each year — is also a very important factor on how you should be invested.

“Typically, if you won’t need money right away, or you may only need a small amount in relation to your account value, that may allow you to take on more risk as your cash needs may be limited,” he said. “However, if you see yourself taking a substantial amount of money right away to live off of, you should consider lowering your equity allocation and diversify more using bonds and other areas of fixed income to help control volatility and give you options on where to pull from when you need money.”

It is important to remember that, particularly in the short term, the stock market is very unpredictable, Cocco said. It’s important to be sure you can ride out the periods of volatility in order to have the potential for success in investing long-term.

Short-term volatility can and will happen for a variety of reasons, whether it is coronavirus-related, or for other reasons, he said.

“One of the important things to remember is that due to inflation — the rising of prices over time — and depending on your unique set of needs, goals, risk tolerance and time horizon, having some exposure to the stock market is generally advisable to help grow your assets over time and keep pace with inflation,” he said. “Being “too safe” with your investments can give you a false sense of security in that you may feel you won’t lose money this way, but you won’t have the same potential to make money either, and therefore you can certainly lose purchasing power over time.”

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This story was originally published on Dec. 23, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.