4 big questions to ask your financial advisor right now

Instead of making changes solely on the likelihood of a moderate recession, WFII Global Investment Strategist Veronica Willis believes it’s important to evaluate annually how your retirement savings are allocated so you can make any adjustments the closer you get to retirement.

Ideally, by the time you get to retirement, you will have shifted from an allocation that has a lot of equities (also known as stocks) or assets that provide long-time growth to assets that are a little bit safer and that you expect to provide you income in retirement. For example, if you’re still far from retirement, you might have an allocation that is 90% to 95% equity-focused. And by the time you get closer to retirement, your portfolio might be 50% to 60% equities.

Willis says even if there wasn’t a recession on the horizon, you might not want to move completely out of stocks and into bonds (also known as fixed income) right before you retire. “This is because you don’t want to miss out on the growth that stocks might experience once they recover from the recession,” Willis said.

While retirement assets will likely go down when equities go down, they are also likely to recover when equities do. If you have a significant amount of your portfolio in assets like bonds, which don’t always move in the same direction as stocks, you might be a little bit more protected.

There’s been a lot of hype recently around artificial intelligence (AI), algorithms, and machine learning, and around bitcoin and the blockchain movement a few years ago. But what does it all mean for you as an investor?

“Megacap tech stocks have proven to be a great investment in the long-run,” said Alvarado. “In fact, the tech sector now dominates many of the large cap stock indexes, and those megacap stocks have been mainly responsible for the equity rally so far this year.”

Potentially, tech stocks are also good for long-term growth, especially if you have a longer time horizon and an objective that relies on asset growth — the potential to go up in value — as opposed to generating income from yield in your allocation, Willis said.

However, there is still the potential to lose some money. “The rally around AI may have gotten ahead of itself, especially since there are other economic uncertainties that could pose some downside risks to the stock market,” said Willis. And because a lot of tech stocks don’t have earnings or pay dividends like a traditional staple stock, interest rates can affect them.

WFII currently has a neutral stance on the tech sector overall. “This means we suggest that people have exposure to tech stocks but maintain a diversified portfolio that doesn’t over-allocate,” said Willis.

First, let’s look at what this means. “Cash is just a tool to fund your investments,” said Willis. “Its purpose is to be available so you can take opportunities without having to sell something else in order to buy that new asset.”

This way you’re viewing cash as just one component of your investment plan — because cash in and of itself is not an investment for growth appreciation. “What you’re investing in, what you’re saving, that’s going to be in those stocks and bonds that will provide some growth or yield over time,” said Willis.

And there’s no quick answer for how much you should set aside. Your financial advisor can help you allocate based on a percentage of total allocation or a dollar amount as well as your circumstances.

“Right now, cash is yielding at higher rates than we’ve seen in quite a while, with the Federal Reserve raising interest rates since 2022,” said Willis. “And it makes the decision between holding something in cash or holding an asset a little bit riskier for an investor.”

The shorter-term benefits of using cash as an investment tool gets amplified over the long-term. “If you’re holding onto cash for too long, you’re likely getting a return at a very low level, and over the long-term that disparity between holding that cash and being invested just widens,” said Willis.

“This year we’ve seen a very impressive rally in the stock market. Had you moved all into cash and out of the stock market last year, you would have missed out completely on that rally. Whereas if you stayed disciplined and invested, you’d still be able to participate in that rally, which would potentially lead to a quicker recovery from 2022’s market activity,” Willis said.

So, what should you do with the cash? Alvarado said, “We believe a good opportunity right now is to take advantage of the higher interest rate environment and park funds in cash alternatives like three-month treasury bills, bank CDs, and money market mutual funds.”

Willis suggests having all these discussions with your financial advisor. “Ask why it’s riskier to hold a long-term saving or investment in cash.”

Although international and U.S. stocks do generally move together, there might be times when U.S. stocks are struggling but international equities are doing OK, and vice versa. Because you won’t know ahead of time, Willis says it’s good to have diversification and exposure to both U.S. and international stocks so that you’re able to benefit when one is outperforming the other.

“International stocks were battered over the past decade, so we started to dip our toes back into this space — not 100% into it, just a moderate allocation — getting ourselves a little more exposed to something that we think has deep value but will take some time to recover,” said Alvarado.

Overall, Alvarado said, “Stay disciplined toward your goals no matter how close you are to retirement. Now is probably a good opportunity to pare down on unnecessary risk because less risky investment vehicles are offering you attractive returns.”