Earlier this week, stocks went into a free fall. The Dow Jones plunged almost 1,600 points, the worst drop in history during a trading day. At the time of this writing, the stock market had recovered about half of the losses. But has that alarming drop made baby boomers wonder if they should keep investing in the stock market?
If so, the short answer is that it depends on your age.
The good news: Younger baby boomers have no reason to worry about the correction, says Kyle Woodley, senior investment editor at Kiplinger.com. Remember, the stock market crash of 2008 had a six-year payback time.
“If you’re in your 50s or 60s, there’s still time to recover,” says Woodley in a MarketWatch article, At what age should you be most worried about a stock market crash? “Fifty years ago, life expectancy was much lower. You’re not investing for the next 5 or 10 years, you’re investing for the next 20. You have room to grow your savings and participate in that growth. Half a century ago, you would have been in two-thirds jumps in your 50s. That’s not the case anymore.”
Financial guru Suze Orman agrees. “If you’re saving for retirement or another goal that’s 10 years or more in the future, you should be happy that stock prices are down,” she says. “When share prices are lower, your money buys more shares. And then you own more shares by the time share prices recover.”
A general rule of thumb for your retirement money to consider is keeping your age in safe investments, she adds. “So if you’re 60, you can have up to 60% in CDs or short-term Treasuries, and the rest you can keep in stocks.”
Keep in mind that because the market has exploded over the last eight years, you may need to rebalance your retirement portfolio to make sure your investments are in line with your risk tolerance. Otherwise, you could lose a lot more money if the market crashes.
What if you’re older and planning to retire in the next five years, or maybe you’re already retired and drawing from your retirement funds?
Some older boomers may have more reason to worry: Jared Snider, senior wealth advisor at Exencial Wealth Advisors in Oklahoma City, says your risk depends on how well you’ve prepared for a recession. “Those people who have not prepared are the most affected. It can cause irreparable damage. They sell out of fear or necessity because they have no other assets to liquidate.”
Experts generally agree that you shouldn’t invest anything you’ll need in the next five years. That way, you’ll avoid pulling out all your money during a downturn in the market that has historically always gone back up.
“If the market crashes, you’ll need to be able to weather the storm instead of selling everything in a panic,” writes Katie Brockman in a CNN Money article, How to Protect Your Retirement Savings from a Crash. “If you only invest money that you know you won’t need for at least five years, it will be easier for you to leave those savings intact until the market recovers.”