Too Much Stock?

Can you have too much of a good thing? We were eating roast last Sunday after church and my wife put a big pile of mashed potatoes on my plate and said, “Is that too much?” I don’t think you can ever have too many potatoes, but I do think sometimes you can have too much stock.

The volatility in the stock market so far this year may be hitting some older investors harder than it should. They might need to make some changes to their investment portfolios.

Several years of a strong stock market along with lower-than-normal bond yields have led many older investors to be heavier in stocks than they usually would have. Fidelity Investments’ says 4 in 10 of their 401(k) investors between 60 and 69 years old have 67% or more stock in their investment portfolios. The Vanguard Group says almost 2 in 10 of their investors who are between 65 and 74 years old have 98% or more stocks in their portfolios.

That’s not normal. Usually, investors lower the amount of stock they own as they get older and end up with a more balanced stock to bond mix when they retire. The reason is that a down market would be hard to recover from while they’re withdrawing from their investment account during retirement.

I see two reasons why some investors get out of whack in their investment mix. First, many investors aren’t paying attention to their portfolios and haven’t noticed how stock heavy their portfolio has become. I speak with new prospects who often think their investments are balanced between stocks and bonds but when they show me their statements realize they have over 75% in stocks. Stocks have done so well over the last decade that the stock percentage has drifted.

The second reason I see older investors with too high a percentage of stocks is that they must do it to support their lifestyle. They are spending more than they should and with bond yields and CD rates so low they keep putting more in stocks trying to get higher returns.

I recommend you evaluate how much stock market risk you can afford to take. I have my clients take an Investor Risk Profile Questionnaire. This is a series of questions about your

investment goals and your personality to see how much investment risk you can really tolerate. I suggest you take one.

Watch your investment percentage and rebalance once or twice a year. Rebalancing means you or your advisor realigning the weightings of the investment types in your portfolio of assets by buying or selling assets to maintain your desired asset allocation.

I’ve had to rebalance my eating habits over the last year and a half. I’m naturally a meat and potatoes guy. Let me tell you it’s a lot easier rebalancing your investments than it is your eating habits. I’m about to leave for my Rotary lunch and I hope they are having mashed potatoes…

Have a blessed week!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance (IAA), a registered investment advisor.

IAA and Fervent Wealth Management are separate entities from LPL Financial.