Want to do something about your ailing retirement investments? Don’t.

When the stock market gets volatile, retirement investors are naturally inclined to want to do something about it. That's probably the wrong move

When the stock market gets volatile, retirement investors are naturally inclined to want to do something about it.

We certainly are at such a point now. The S&P 500 has plunged 21.1% so far this year, as of Wednesday's close. Last week, it lost 5.8%, its biggest weekly percentage drop since the selloff inspired by COVID-19 in March 2020

But doing “something” while the market is troubled just might be your worst move. The time to act is before the market gets rough, notes Mitch Tuchman, managing director and chief investment officer at Rebalance, an investment management firm focused on passive index strategies. Speaking with me for my Reuters column this week, he said: “It’s very important to anticipate the earthquake, and be seismically reinforced well before it occurs,” he said.

Anticipating the quake means adhering to three core principles:

• Diversification: invest in low-cost mutual funds that invest in thousands of companies - far more than you could ever select, track and manage on your own. That gives you a measure of safety, since your exposure to sharp movements in any one stock or market sector is greatly reduced.

• Balance: Invest in more than one type of asset (typically equities, bonds, and cash securities). This spreading out of investments is helpful because in any given year, one of these asset classes might be up while another is down. Balance helps smooth out the ups and downs. This can be done within a specific fund, or by owning two or three different types of fund that give you a reasonable balance among different investment types.

• Allocation: Make a thoughtful decision about your exposure to equities that reflects both your tolerance for risk and the goals you are trying to achieve. The challenge at times like this is sticking with that allocation mix as market shifts distort your percentages. This is achieved through periodic rebalancing of the portfolio - when stocks are riding high, you sell enough to bring your allocation back to the targeted level and reinvest the proceeds in an asset class that is down. Rebalancing is a sell-high, buy-low discipline that can boost your portfolio performance significantly over time.

Tuchman notes that markets like the one we’re experiencing now are toughest for do-it-yourselfers accustomed to placing big bets on individual companies or sectors. Over the past few decades, the evidence clearly shows that adhering to the principals I outline above - not stock-picking - yields the best long-term results.

Some people like the thrill of placing these narrow market bets. That’s fine as a hobby - and possibly a very expensive one. You need to be willing - and I do mean really willing - to lose most or all of what you invest. For everyone else, it’s about diversification, balance and allocation.

Learn more at Reuters Money.

Long term care coverage is trending in the wrong direction

Our system for managing long-term care risk is nothing short of a mess. In fact, it’s not accurate to call it a system at all—what we have is a poorly functioning private insurance market, fast-rising cost of care and a general state of denial about the potential financial risks of a serious long-term care need.

Consider these data points:

• Last year, the median annual national cost of a private room in a nursing home facility was $108,405, according to the annual Genworth Cost of Care Survey. Care costs have risen at a much faster pace than overall inflation: from 2004 to 2021, the cost of assisted living facilities rose 4.17% per year; by comparison, the Social Security cost-of-living adjustment (which reflects general inflation) rose 2.2% annually.

• Many Americans are either in denial about long-term care risk or simply uninformed. One poll found that 49% of Americans ages 40 and older expect Medicare to pay for their long-term care needs, and 69% have done little or no planning for their own needs.

• Traditional long-term care insurance remains in a free-fall. Roughly 50,000 policies are sold annually, down from a peak of 740,000 sold in the year 2000. And policyholders have faced an ongoing series of very large rate hikes as insurers struggle with pricing that seems to have been too low at the outset.

I considered each of these points in more detail for my latest WealthManagement.com column.

This problem could have been avoided

My heart really broke watching this news story from a tv station in Houston. You’ll see people waiting in line for hours outside a Social Security office in the blazing sun waiting to get help with their benefits.

The reporter notes that the problem was likely to recur the next day, and that “no solutions” are yet in sight.

Well - of course not. The problem that caused this unacceptable situation doesn’t lend itself to an overnight fix. But it has been clear for years - and willfully ignored by Congress and successive Presidential administrations.

The Social Security Administration has been struggling for years with underfunding of its administrative budget by Congress. Just as bad, Washington went on a wild goose chase over the past decade hunting for widespread fraud in the Social Security Disability Insurance (SSDI) program that does not exist. Fraud supposedly was behind the big surge in SSDI applications during the last decade - a claim that was supported only by some very flamboyant examples of abuse of the program. No evidence has ever surfaced of a more widespread abuse problem:

Here’s the reality. The large increase in SSDI claims during that time occurred because the large baby boom generation was moving through the peak years of a likely disability (their fifties and early sixties). Now that more of them have moved into the years when they claim retirement benefits, claims have plunged.

When the Social Security trustees issued their annual report earlier this month, the big headline news was a sharply improved SSDI trust fund forecast. The trustees now project that the trust fund will be solvent and able to meet all of its obligations to beneficiaries for at least 75 years. That’s a sharp contrast with earlier forecasts, which often showed SSDI running out of money within a decade.

The fake chase after fraud has damaged Social Security’s administrative capacity. In recent years, Congress has earmarked a healthy chunk of the SSA administrative budget for so-called “program integrity” initiatives. Dollars that could have been used to hire more field office staff - and keeping beneficiaries out of the blazing sun in Houston - instead went to fraud prevention.

The media has played a very unfortunate role fueling the fraud narrative, and it should be admitting its failures. Here’s what amounts to a mea culpa by one of the worst offenders, The Washington Post. Not very satisfying, I’d say.