Staying on track with retirement and short-term goals in a choppy market

The best and worst days tend to be clustered together, according to data from JP Morgan. If you sell, you risk missing out on the benefit – and it will cost you dearly.

“Trying to time the market is probably going to cause you to miss some really, really good days,” said Jordan Jackson, global market strategist at JP Morgan.

On April 29, the market was down 3.6% for the day. Then, five days later, on May 4, the market rebounded 2.99%.

Additionally, on March 7, the S&P 500 was down about 2.95%. Two days later, on March 9, the index was up 2.57%.

The best and worst days tend to be clustered together, Jackson said. Also, if you miss the replay, it’s hard to make up for those lost gains.

When planning for your retirement, it’s wise to have a healthy mix of stocks and bonds that fit your time horizon.

Ideally, your diversified investment strategy will expose you to different market sectors to help you manage your overall portfolio risk, according to Rita Assaf, vice president of retirement leadership at Fidelity Investments. This includes US small cap, large cap and international stocks, as well as investment grade bonds.

Since equities have typically rallied for an extended period, it’s also important to check that your portfolio hasn’t drifted into a higher equity allocation than you originally planned, Assaf said.

“You want to make sure your portfolio is balanced and your equity allocation is in line with your goals,” Assaf said.

While long-term retirement investors want to stay the course, those with shorter time horizons — say three to five years — should take a different approach.

This may include a down payment to buy a home or a few years of spending needs if you are already retired.

For these goals, your primary focus should be capital preservation, according to Greg McBride, chief financial analyst at Bankrate.com.

“Don’t be tempted to chase returns at the expense of capital preservation or easy access when needed,” he said.

With the Federal Reserve set to raise interest rates, the good news is that savers with short-term goals will likely be rewarded with higher returns on their money.

Online savings accounts are “absolutely” an option that can meet the needs of these savers, McBride said. Additionally, these online accounts will likely be among the first to raise rates in response to the Fed’s actions.

Certificates of deposit may also be another suitable choice. But it would be wise to pick a six-month CD and then adjust your strategy, rather than lock in a multi-year CD for now, McBride said.

Similarly, I bonds have been touted as an inflation hedge, as they will offer an interest rate of 9.62% in the coming months.

But there are limits, McBride said. For one thing, you can’t cash in an I bond in the first year. Also, if you cash out before the five-year mark, you will lose three months of interest.

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