You have permission to edit this article.
How to Prep Your Retirement Portfolio for a Second Wave

How to Prep Your Retirement Portfolio for a Second Wave

  • Updated
  • 0
How to Prep Your Retirement Portfolio for a Second Wave

You've seen the news. COVID-19 is still taking its toll, to the extent that several states are closing up bars and restaurants, once again. You're right to worry about how a second wave might affect your retirement savings and what steps you should take to protect your assets.

Your next move mostly depends on when you're targeting retirement. The old rule of thumb is not to invest funds you need within the next five years. Between 2010 and 2019, you might have kicked yourself for following that rule and leaving investment earnings on the table. But today's uncertain economic outlook warrants a conservative approach.

Image Source: Getty Images.

If you're on track to retire soon

If you plan to retire within five years and you've reached your targeted savings goals, now is the time to consider cashing out some of your riskier investments. The S&P 500 index, largely considered a proxy for the market as a whole, is only down 5% on the year as of the end of June. That should mean you can liquidate some of your positions without incurring huge losses.

Don't sell off your entire portfolio, though. At most, you could liquidate funds you expect to need before 2025. If you plan to retire in three years and your job outlook is fairly stable, for example, you could set aside two years of income in cash. And remember to consider your Social Security benefit when calculating the income you need from your savings.

Drop that cash into a high-yield savings account and you'll earn about 1% to 1.5% on the balance. You might miss out on some profits with this approach, but another round of market volatility won't wipe you out, either. It's a fair trade-off.

If you haven't saved enough

If retirement is just around the corner and you haven't saved enough, you may benefit from a different approach. Instead of moving into cash, trade out your riskier positions for more stable equities and equity funds. Doing so keeps you in the hunt for gains but should reduce volatility.

Your riskier positions are small-cap funds, mid-cap funds, penny stocks, shares you bought because you liked the company's name, and international equities. Reduce these in favor of established companies that have a record of paying dividends through all economic cycles. In terms of stock market sectors, consumer staples, mass retailers that sell consumer staples, healthcare, and utilities tend to be more resilient through recessions.

Even better, take a diversified approach and seek out large-cap mutual funds and ETFs. Sustainable funds, also known as ESG funds, are another option, as these have performed well during recent downturns. Remember to choose funds with low expense ratios, since a fund's expenses directly impact your returns.

Know that holding more than 60% equities in your portfolio can be risky when you're retiring soon. You'll benefit if the economy recovers sooner rather than later but do worse if the recession drags on. Don't proceed with holding a high percentage of stocks unless you have a backup plan or the flexibility to delay retirement if that becomes necessary.

If retirement is more than five years away

If your retirement is more than five years away, you have time to ride out this recession and all of its craziness. The only adjustments you need to make are those that'll keep you from panicking in a market downturn. That might mean shifting to higher-quality equities or increasing your bond holdings if you're overweighted in stocks.

You can use the Rule of 110 to assess the split between stocks and bonds in your portfolio. Simply subtract your age from 110 and the result is the percentage of your portfolio that should be in stocks. At age 40, for example, you'd hold 70% stocks and 30% bonds. That composition strikes a reasonable balance between growth opportunity and volatility, given that retirement is 20-plus years away.

Respect your timeline and risk tolerance

Ultimately, your retirement timeline and risk tolerance should guide the actions you take in your portfolio to protect against a second wave. If retirement is near, or you have a tendency to panic in recessions, you can limit your exposure to value losses by increasing your cash or bond holdings.

Those actions also limit your growth potential, however. The right move is the one that protects the funds you'll need over the next few years, while retaining some growth opportunity over the long term.

10 stocks we like better than Walmart

When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.


The business news you need

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

  • Updated


You have bought an expensive new toy in expectation of your tax refund, and are now desperately waiting for the refund to arrive before the repo man and his large friend Vito come to visit. How can you find out the status of your refund at any time to estimate whether you need to make a run for it?

A more likely scenario is that you are just curious about your refund, and would like to check the status periodically.

In either case, regardless of who prepared your taxes, you need to go through the IRS website to get your answer. Under the Refunds tab at, you can select the "Where's My Tax Refund?" link and find out the latest on your return. The site is only updated once every 24 hours and is also available in Spanish.

If you e-filed, you can check the status within 24 hours after the submission, but on a traditional paper return, you will have to wait four weeks before checking. This process c...

Refund Advance Loans And Refund Anticipation Checks 101

When The Government Can Keep Your Tax Refunds And Disability Checks

IRS Audits Fall to 11-Year Low

Get up-to-the-minute news sent straight to your device.


News Alerts

Breaking News