Despite recession fears, most investors have yet to move 401(k) assets
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Many investors fear an impending recession amid rising interest rates, high inflation and stock market volatility. But the majority have not changed their portfolios, according to research from Fidelity Investments.
Only 5% of 401(k) and 403(b) investors shifted their asset allocation in Q2 2022, Report foundslightly lower than the 5.3% that made changes in the previous quarter.
Among savers who made an adjustment, the majority of investors made just one adjustment, with the top change involving a move to more conservative assets, the results showed.
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Not surprising, since many 401(k) investors use so-called target date fund, an automatic “set it and forget it” option and gradually shift an investor’s allocation to more conservative assets as they near retirement. These changes are not in the 5% Fidelity recorded, as the fund makes adjustments.
Indeed, 95% of 401(k) plans to deliver funds by target date in 2021, according to Vanguardand 81% of participants used these funds.
However, if you want your portfolio to reflect concerns around the economy, here are some options to consider.
Consider switching to commodities
While there may be limited options for hedge against inflation in a 401(k) plan, investors may have more options in other accounts, Bill certified financial planners say. Brancaccio, co-owner of Rightirement Wealth Partners in Harrison, New York, said.
His firm began shifting client portfolios last summer, expecting higher inflation with the possibility of interest rate hikes. “You have to make amends before the train leaves the station,” he said.
If we’re going to have persistent inflation, commodities are a really good hedge against that.
Bill Brancaccio
co-owner of Rightirement Wealth Partners
A “broad basket of commodities,” which includes energies, materials and metals, often between 3% and 10% of the overall portfolio, is a good addition, he said.
“If we’re going to have persistent inflation, commodities are a really good hedge against that,” he added, noting that assets can also do well when interest rates rise.
How to locate your bond allocation
CFP Anthony Watson, founder and president of Thrive Retirement Specialists in Dearborn, Michigan, said: “While many advisors build portfolios to hedge against volatility, do-it-yourself investors can still have possibility of improvement.
For example, you’ll want to look at the so-called maturity of a bond, which measures sensitivity to changes in interest rates. Expressed in years, the maturity elements in the coupon, the time to maturity, and the yield paid over the term.
“You want to make sure your bond has a lower maturity,” because when interest rates rise, you can reinvest the proceeds sooner to earn more, Watson said.
And you’ll want to make sure there’s a “level of risk on high-quality bonds,” including so-called investment-grade bonds, which, he says, typically have lower risk because the issuer is less likely to default. in debt.
While market interest rates and bond prices move in the opposite direction – higher rates cause value to fall – these assets still play an important role in diversifying a portfolio during a prolonged downturn, Brancaccio said.