Fed Chairman Jerome Powell came out this week and said he will not rule out increasing rates four times this year versus three times.
After that, the Dow saw nearly an immediate 300 point drop. We asked Carl Carlson from Carlson Financial if the average investor should be concerned after seeing this kind of volatility.
He said to listen to what the Fed Chairman really said; he said the economic outlook remains strong. And that is ‘darn good news.’
The stock market can drop all of a sudden when there is good economic news setting off bad news in the stock market. The investors know the world they are currently in but don’t know how change may affect it so the immediate reaction is negative until things return back to normal, only to await the next change.
If that change sets off major negative reactions that could have a long term impact on someone’s investments Carlson says to deal with it with one keyword.
Allocation. Or Investment Allocation. That is, what percentage of your investments should be in safe investments versus risky investments and everything in-between.
If you need to figure that out you can get with a financial advisory firm that is really, really good at planning. Carlson said a great plan leads to great investment allocation, which leads to a more comfortable investing and retirement life.
If you are wondering when it might be time to start making these shifts in how much money you have in safe investments vs risky ones Carlson said it is different for everyone.
In general he said once you are within 10 years of retirement or if you don’t plan to retire but are within 10 years of age 65, then you should be considering moving some of your nest egg to safer investments, especially so if you will need a significant amount of income from your investments in retirement.
If you are within three to five years of retirement or age 65 and will need considerable income from your investments to live on you might consider having up to half of your money in safe investments, Carlson said.