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Should I Panic About High Stock Market and Equity Valuations?

Should I Panic About High Stock Market and Equity Valuations?

| January 25, 2021

It comes as no surprise that the stock market currently finds itself in a state of flux. As the pandemic continues — albeit with a vaccine and a perceived end in sight — the stock market still possesses a great deal of volatility that affects your current portfolio and what kind of return you can expect from your equities down the line. A certain degree of risk is involved with both short and long term goals. Hence, as you dive into the numbers and try to project how your equity investments will look like in five to ten years, you need to look at how the current market impacts your valuations and not make a knee-jerk reaction based on the short term projections. 

The following infographic provides a brief overview of the importance of risk assessment and risk tolerance when dealing with equities and retirement planning: 

The Impact of High Equity Valuations on Retirement Plans

Over the past year, people have worried about the pandemic’s impact on their retirement plans, and one such factor that they examined boiled down to their equity valuations. Higher present and projected valuations on equities mean that the current return potentials trend downward over the next decade or so while the stock market continues to rebound from the pandemic. People that are still far off from retirement can withstand a decade-long dip like this with the hope that as they get closer to retirement, the potential returns for their equity assets will rebound as well. However, for people who are either approaching retirement or are currently retired, they may wish to adjust their strategy to compensate for the equities market fluctuations. 

Newly-retired people have to gauge their personal risk tolerance before creating an action plan to build their portfolio assets. For recent retirees, a more conservative approach to asset collection, in the beginning, can lead to building a suitable buffer zone to compensate for the lowered return expectations for your equities. Adding additional buffer assets that are not tied to or dependent on market volatility can help make your transition into retirement as smooth as possible. 

The Importance of Your Personal Risk Tolerance

As previously stated, investing in the stock market, equities, and the like comes with an inherent degree of risk. Short and long term volatility means that people need to exercise a mixture of patience and decisive decision making when dealing with their portfolios. So as you begin to build your portfolio, seeking financial advice for retirement and managing your personal risk tolerance holds greater importance for your future. 

Should I Hit the Panic Button on My Equity Prospects?

Panicking in this situation may not be the wisest of moves. While the prospect of lowered returns on your equity investments might give you pause, you can effectively pivot and have confidence in your retirement plan moving forward with the help of an experienced retirement and business financial planning professional. 

If you want to get a better understanding of your equity investments and get your retirement plan into the best place it can be, Total Resource Financial can help! Contact us to schedule an appointment today!