Five tips for investing for retirement

The run-up in stock prices this year could tempt even the most hands-off investor to wade into their retirement account and make some changes.

The Dow Jones industrial average, Nasdaq and Standard & Poor’s 500 indexes are each up more than 20 percent over the past 12 months. But experts suggest investors tread cautiously and avoid major changes aimed at timing the market.

“It’s a retirement account. You are investing for not months or even years, but decades into the future,” says Eric Tyson, author of “Personal Finance for Dummies.” He adds: “Most people, including most professional investors, are not very good at market timing.”

Even if you’re a set-it-and-forget-it investor, unless you’ve pulled out of stocks altogether - as some investors did right after the 2008 financial crisis - it’s likely the stock portion of your retirement account has grown significantly in the last few years.

Still, making periodic adjustments to your plan’s asset allocation is a wise move, and part of remaining engaged with your overall retirement strategy. Here are six ways to efficiently manage your retirement portfolio

1. GET THE BASICS RIGHT

Save as much as you can, as early in your working years as you can. How much? Experts vary on this, but a common benchmark is to set aside 15 percent of your pay, including any matching funds from your employer.

2. DON’T BANK ENTIRELY ON WINNING INVESTMENTS

The market rises and falls, and timing may not be on your side - just ask folks who began relying on their retirement savings as the market hit the skids in 2008. One good way to maximize your savings is to put more money into the plan.

“Those who continued to not just remain invested, but remained committed to making contributions, are the ones that were able to come out ahead in the end,” McHugh says.

3. PERIODICALLY ASSESS RETIREMENT COSTS

Making sure you’re financial needs are met in retirement requires having a sense of what those costs will be. And not just the basics, but any travel or other major purchases. You’ll also need to update that plan, particularly as you get closer to your post-work life.

By some estimates, retirees will need 85 percent of their pre-retirement income coming in from several sources, including Social Security and other retirement accounts, a pension or similar employer-sponsored plan, and personal assets, such as other investments, savings or real estate.

“If you’re behind saving or want to retire at an earlier age, you may find when you crunch the numbers that to reach your goal you should be saving 15 or even 20 percent,” Tyson says. “If you’re at a point in your earnings career where your earnings are relatively high but you don’t think it’s going to last, you don’t want to keep working as hard, you may want to save 20 percent to 25 percent of your income during a certain period.”

Fortunately, there are a bevy of online calculators that can help craft an estimate for how much you’ll need to put away for retirement.

4. REBALANCE YOUR ASSET MIX

Experts recommend taking a look at your asset mix - how much you have invested in certain funds of varying risk, or say, the proportion of your retirement invested in stocks versus bonds or other investments - and tweak them occasionally.

“Whether the market is up or the market is down, it’s always a good time,” says Philip Rousseaux, president of Everest Wealth Management Inc. “It’s kind of an automatic way of always selling high and buying low.”

Simply put, if you’re heavily invested in a segment of stocks that have gone up sharply, you bring down your position on that a bit and shift the funds over to a segment that’s undervalued.

Rousseaux recommends rebalancing at least on a quarterly basis.

Tyson, on the other hand, says every three to five years is just fine, unless the market has undergone a significant downturn.

As a general rule, stocks are going to be more volatile and risky in the short term, but reduced over the long-term. With bonds, it’s reversed. They’re less volatile in the near term, but there’s a chance that they’re not going to give enough of a return in the long term, sapping your funds for retirement.

5. RESIST TIMING THE MARKET

Making major changes to your retirement account to profit off a market trend can be risky, and experts suggest avoiding it altogether.

“Market timing changes people make are often made on emotional reactions to events,” Tyson notes. “It’s better to have an overall allocation, and stick to that.”

And if you do take a shot and miss, don’t wait on the sidelines for a time to jump back into the market.

“You don’t want to compound that mistake by continuing to engage in more market-timing,” Tyson adds.