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Cracked 401k nest egg

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Tess Vigeland: If you're in your early investing years, most experts will tell you to focus on the long haul: the markets will eventually turn up again.

But let's start with a look at what you should do if you're retiring soon. Marketplace's Bob Moon has been exploring the best ways to manage your portfolio when time doesn't seem to be on your side.


Bob Moon: After all these years building your retirement nest egg, now comes the nightmare on Wall Street.

Ellen Rinaldi: Sit back, take a deep breath, no need to panic.

Ellen Rinaldi is head of Investment Counseling at the money management firm Vanguard. She says the old rule about sticking with your investments for the long-haul still applies to those ready to retire. With any luck, you're not going to keel over tomorrow -- and you'll have an investment lifetime ahead of you.

Rinaldi: Anyone who's close to retirement is still going to be living in this world and paying expenses for a number of years -- perhaps 30 or 40. So even if you're close to retirement, this may not be the time to be selling out of the market.

A retiree who's following sound investing principles should have split their nest-egg by now, she says, between fixed-income investments in cash and bonds and maybe half or 60 percent in stocks -- equities:

Rinaldi: Certainly when you're a younger investor, you're 25, you're 30 years old, 100 percent equities should not keep you up at night. If you happen to be 58 years old, however, 100 equities might be something that could cause some concern.

So the rules are a little different when you're older and need to ride out the market. Rinaldi says that's why it's a good idea to build up a rainy-day reserve so you don't need to be cashing out your stocks at the wrong time:

Rinaldi: That cash reserve fund is what can tide you over when the market does this kind of a thing and is very volatile. Withdraw funds from there rather than taking out investments that are going to lock in a loss for you.

If you're just starting out, the income from your short-term cash and bond investments should get you through the early part of your retirement. At T. Rowe Price in Baltimore, Certified Financial Planner Stuart Ritter says it's the higher returns from the stock market share of your nest-egg that should help you hedge against inflation in the long run:

Stuart Ritter: The money you don't need for 10 or 15 years, think of that as being the money that's in stocks. And if you don't need it for 10 or 15 years, what happened over the last week or the last quarter or even what happens in the next year isn't all that relevant compared to the 15 years it will be before you're using that money.

Ritter says the way to control your anxiety isn't cutting and running from the stock market, but cutting back on your spending to get you through now. Personal finance writer Liz Pulliam Weston says that's good advice:

Liz Pulliam Weston: The big risk is that you will start taking out more money than can be sustained in the long run and if you do run into a bear market right as you retire, you can wind up running out of money years sooner than you might have otherwise.

Weston says now is a good time to get some help from an expert financial planner, rather than just guessing about how you've allocated your investment dollars:

Weston: Remember that the pundits make their money by driving traffic to a Web site to read their columns or driving traffic to their business shows on TV, whatever. They are going to be proposing all kinds of solutions, all kinds of active management of your portfolio. They don't know you. They're giving broad advice for a broad market that might not fit you.

Moon: As we are here.

Weston: Exactly. So go get some individual advice.

And that may be the best advice we can give you.

In Los Angeles, I'm Bob Moon for Marketplace Money.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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