Market turmoil may be even more unsettling for investors with just a few years to go until retirement—what experts consider a portfolio "danger zone." Avoiding wrong moves amid the turmoil could be even more critical.
Financial advisors have been shifting their recommendations in recent years, urging consumers to head into retirement with greater stock exposure than previously recommended. As consumers live longer, they reason, that more aggressive allocation continues generating growth with what could be a 25-, 30- or even 40-year time horizon.
"If you've amassed enough money that you're comfortable enough earning zero-point-who-cares, then congratulations and high five," said Ed Gjertsen II, a certified financial planner at Mack Investment Securities in Northfield, Illinois, and president of the Financial Planning Association.
For many consumers, he said, underexposure to equities is the bigger gamble. A Prudential study found that significant fixed-income allocations, combined with an extended period of low interest rates, could increase a retiree's risk of running out of money from 21 percent to 54 percent.
Yet other soon-to-be retirees may be overexposed to equities. In a recent report, Fidelity found that 18 percent of account holders age 50 to 54 had a stock allocation at least 10 points higher than suggested, and another 11 percent had all of their 401(k) assets in stock. Among those 55 to 59, 27 percent had a higher-than-recommended stock allocation, and another 10 percent had their entire 401(k) in stocks.
Wherever you fall on that spectrum, now isn't the time to make a radical pullback to less risky investments—or out of the market altogether. "Making decisions in times of stress and panic generally doesn't turn out well," said Gjertsen.