A RetireReady Publication | Winter Edition
Winterize Your Retirement Portfolio
To Help Avoid Icy Conditions, Rebalance Your Investment Allocation on a Regular Basis
Over time, frosty market flurries and chilly economic winds (or simply just the passage of time) can cause your investment allocation to drift a bit. This can leave you in a more conservative target investment allocation than what you originally selected and are comfortable with. Because your portfolio is exposed to the elements, it’s a good idea to rebalance your investments on a regular basis.
Let’s say that last quarter there was a stock market downswing and your original investment allocation of 60 percent in stock funds has now decreased to 50 percent. Meanwhile, your intended investment allocation to bond and money market funds has now increased. The current overall investment allocation no longer matches your original strategy.
What You Need to Do
If you’re invested in a target date fund, the fund manager automatically rebalances your investment allocations for you. If not, you’ll have to take an active role in rebalancing your investments. In the previous example, that means going into your account and selling off 5 percent each of your bond and money market fund investments and reallocating those funds back into your stock fund investments so they are aligned again with your chosen percentages. You can easily do this via your online account through your recordkeeper or by asking a customer service representative to assist you. In addition, many 401(k) recordkeepers offer an automatic rebalancing service (with a selection of timing options available, such as quarterly, semiannually, or annually).
And in the case of an extended increase in stock fund prices, you might find that your portfolio is riskier than you intended (such that a greater percentage of your portfolio is now weighted in stock funds). To get back to your target allocation, you would need to sell off part of your stock fund investments and reallocate appropriately to your bond and money market fund investments.
Raise Your Savings Temperature
One way you might save money to add to your retirement plan is to ask your local electric or gas utility for a free or low-cost home energy audit. The audit may reveal inexpensive ways to reduce home heating and cooling costs by hundreds of dollars a year. Keep in mind that a payback period of less than three years, or even five years, can save you lots of money in the long term.
Sources: Sofi, “How to Rebalance Your 401(k)” (August 25, 2023); Americasaves.org, “54 Ways to Save Money”
On the Money
A Money Market Fund Can Help Support Your Overall Financial Plan
A money market fund is a type of mutual fund that invests in short-term Treasuries and other money market instruments, including U.S. government securities and commercial paper. Due to the nature of the short-term investments, these are considered highly liquid. That means they can be exchanged for cash easily, giving investors access to their money when they need it. In addition, money market funds have typically offered a better yield than those available from a standard bank savings account. Unlike a savings account, money market funds are not traded throughout the day and you may not be able to access your money intraday. Additionally, money market funds charge fees that can exceed the income earned on fund investments in low-interest rate environments.
The U.S. Securities and Exchange Commission mandates that only short-term securities with high credit quality are available in money market funds. For the most part, money market funds are considered to be safer than other investments, with a target value of $1 per share. Money market funds have only dipped below this value (a term known as “breaking the buck”) on a small number of occasions associated with financial crises.
What’s in a Name?
While they sound similar in name, a money market fund is not the same as a money market account. A money market fund is an investment that is sponsored by an investment fund company. Therefore, it carries no guarantee of principal. A money market account is a type of interest-earning savings account. Money market accounts are offered by financial institutions and are insured by the Federal Deposit Insurance Corporation. Money Market funds are not insured by the FDIC or other governmental agency. Although money market funds seek to preserve the value of the investment at $1 per share, it is possible to lose money and there is no guarantee you will receive $1 per share when you redeem.
Here are some key ways that a money market fund can help support your overall financial plan:
Funding short- to intermediate-term financial goals. If you’re saving for a financial goal that falls within the next three to five years, a money market fund may make sense. This could include such goals as saving for a vacation or wedding or a down payment for a house. In these cases, it may be more important that your savings hold their value over the shorter period.
Maintaining an emergency fund. Having money saved in a money market fund can act as a personal safety net to get through financial hurdles, such as a period of unemployment or an unbudgeted large expense (such as a car or roof repair, or a dishwasher or washing machine/dryer replacement). Many financial professionals recommend an amount that could cover three to six months of expenses. The liquidity feature of money market funds makes them a good option for this.
Holding assets temporarily. A money market fund may also be used as a place to temporarily hold or transfer assets, such as an individual retirement account rollover or an inheritance, while trying to decide how to invest those funds for the long term.
Keep Your Long-Term Investment Strategy in Perspective
While money market fund yields have risen as they benefitted from the Federal Reserve raising interest rates, they may not be appropriate for long-term investing—particularly in your 401(k) or other workplace retirement plan—as the returns tend to be lower than stocks and bonds, which are riskier investments. In addition, over time, the returns may not keep pace with inflation.
Sources: Investopedia.com, “Money Market Funds: What They Are, How They Work, Pros and Cons”; T. Rowe Price, “4 Reasons to Save in a Money Market Fund”
Take the Plunge
Looking to Improve Your Physical and Mental Wellness? Consider Taking a Cold Plunge
Cold plunges are a trend that involves immersing yourself in cold water, usually for some type of health benefit.
These icy plunges are gaining popularity as a way to boost immune systems, build resilience to stress, and treat inflammation. Some celebrities, athletes, influencers, and others have endorsed cold plunges on social media, where the hashtag #coldplunge has more than 1.1 billion views on TikTok.
A cold plunge involves immersing yourself into water that’s somewhere between 45 and 55 degrees Fahrenheit. You can create an ice bath with as little as a garbage bag, some ice, and water. Many people, however, prefer a more concrete pool or tub for their cold water dip.
Potential Health Benefits
The potential benefits of taking a cold plunge or ice bath include:
Reducing inflammation and swelling
Assisting with muscle recovery and easing postworkout soreness
Stimulating the production of white blood cells and anti-inflammatory cytokines, which help fight off infection and disease
Increasing blood flow throughout the body
Enhancing stress management and mood
Improving clarity and focus
Promoting weight loss and metabolism
International Intrigue
Many countries have a long-standing cultural tradition of taking cold plunges, especially in Scandinavia, Central Europe, and the Baltic region. Finland, for example, is well-known for its sauna culture, which often involves alternating between hot and cold temperatures. Many Finns enjoy taking a dip in a frozen lake or river after a sauna session, especially in winter. In addition, the United Kingdom saw a surge of interest in cold water swimming during the Covid-19 pandemic, as many people sought a way to cope with stress, anxiety, and isolation. Cold water swimming clubs and groups have attracted more members and followers, who claim that swimming in the sea, lakes, or rivers helps them feel more alive, happy, and resilient.
Before You Jump In
It’s important to consult a doctor before trying cold plunges, especially if you have any medical conditions or concerns. Potential risks include hypothermia, frostbite, skin irritation, and infection. And, in rare cases, immersion can provoke cardiac arrest, arrhythmia, or respiratory distress, particularly in people with underlying health issues. You should also start gradually and limit the duration and frequency of cold plunges to avoid adverse effects.
Sources: Discover Magazine, “The Science Behind Cold Water Plunges” (December 5, 2023); Today.com, “Do cold plunges have benefits for physical and mental health? What to know” (June 27, 2023); 3 Seas Europe, “Dive On In! The Water’s Just … Freezing” (December 2, 2022).
Retirement in Motion
Tips and Resources Everyone Can Use
Knowledge Is Retirement Power
According to a recent report from T. Rowe Price, “Unretiring”: Why Recent Retirees Want to Go Back to Work, many retirees see part-time work as a good life stage transition strategy. Fifty-seven percent of retirees surveyed indicated that they want to continue working in some form, whereas only 43 percent would consider stopping work all at once. Continuing to work part-time may allow you to delay taking social security benefits while staying engaged with something that provides social and emotional benefits. According to the Social Security Administration, your monthly social security benefit increases by 8 percent for each year you delay taking it. Consider working with a financial professional to help evaluate the potential benefits of continuing to work in some capacity as you make the transition to full retirement.
Q&A
Q: What is the most I can save this year in my 401(k) plan?
401(k) savers can contribute up to $23,000 in 2024. Savers age 50 and older can make an annual catch-up contribution up to $7,500 in 2024, for a total contribution of $30,500. These limits also apply to savers with a 403(b) plan and most 457 plans.
Quarterly Reminder
When was the last time you reviewed your beneficiary designations for your major assets—including your retirement plan? The start of each new year is a good time for some financial housekeeping. Make sure your current designations still match your wishes, especially if you have had any major life changes such as marriage, divorce, or the birth or adoption of any children.
Tools and Techniques
According to the Education Data Initiative, the average cost of college has more than doubled in the 21st century. The average cost of college in the U.S. is $36,436 per student per year, including books, supplies, and daily living expenses. 1 When funding a college education, student loans can be complex. Doing your homework and making informed decisions are an important part of the financial planning process. Whether you’re a graduate, a parent, or someone considering higher education, there are plenty of resources that can help you make smarter financial choices. The U.S. Department of Education’s website, studentaid.gov, contains a wealth of comprehensive information, including the most current rules and programs available, as well as a loan simulator to help you evaluate options for your specific situation.
Corner on the Market
Basic Financial Terms to Know
SMART Financial Goals. Goals that are specific, measurable, attainable, relevant, and timebound. Examples of SMART financial goals include: “Increase retirement account contribution by 1 percent on January 1,” “Pay off $3,000 credit card in 18 months,” and “Have $1,000 emergency fund built up in 10 months.”
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.
Third-party links are provided to you as a courtesy and are for informational purposes only. We make no representations as to the completeness or accuracy of information provided at these websites. Commonwealth Financial Network® does not provide legal or tax advice. Please contact your legal or tax advisor for advice on your specific situation. Authored by the Strategic Retirement Solutions team at Commonwealth Financial Network.
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