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Rebalance portfolio

By Terry Savage on November 14, 2020 | Investments

Hi Terry,

I am 59 1/2, just recently unemployed due to COVID downturn. My portfolio has 20% stock, the rest in bonds and cash. I want to increase my stock allocation to around 50-70% stocks. The market prices seem quite high now. Should I wait for a market pullback, or start to make small stock purchases monthly ie dollar cost average. Any other thoughts? The high P/E ratios are concerning to me.

Terry Says

Ahah — you want me to “time” the market for you! I’m no good at doing that! I always stick with a balanced portfolio. But I would caution you about the bonds you own. If you buy bonds at today’s low rates, and if interest rates rise because of inflation in the future, then the market price of those bonds will fall. You don’t have to sell them, but you will be stuck earning lower interest. Most people don’t recognize that risk in bonds– even with the best qualify bonds.
When interest rates rise, bond prices fall!

Over the long run — and you DO have the long run, with a life expectancy of another 30 years at least, you will need a diversified stock portfolio to keep you ahead of inflation (with dividends reinvested). But timing the market in your retirement account is never a good idea — especially when you’re unnerved by unemployment. That’s bound to cause emotional reactions. Make a plan and stick to it. Over that long run you should come out ahead in a diversified stock fund such as the S&P 500 stock index fund.

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