Financial headlines feel personal when you’re retired. Whenever a high-flying stock drops double digits in a single trading session or a company’s management cuts its earnings expectations, the instinct is to act: sell, rebalance, something.
But for retirees trying to protect what they’ve saved over decades of hard work, the most dangerous responses to market volatility are those rooted in emotion. The ongoing sell-off in artificial intelligence (AI) stocks isn’t necessarily a warning sign that you need to take immediate action.
Rather, it can be a much-needed reminder that you may be wrongly positioned to begin with. Here’s what you need to do.
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Chasing stories is a major problem in building sustainable wealth
Retirees who indexed heavily on AI-related names – semiconductors, cloud infrastructure companies or enterprise software platforms – likely did so because the story seemed compelling. To be fair, tech sector returns have largely confirmed this statement in recent years.
However, smart investors understand that concentrated exposure to one theme makes your portfolio vulnerable. That’s the last thing you want when you retire.
When a fast-growing sector enters a correction, it rarely happens gradually. In recent months, growth stocks have seen a sharp decline due to capex surprises and a shift in sentiment around the pace of AI monetization.
Retirees risk recording these valuation declines more permanently than the paper losses a novice investor must endure. In turn, poorly timed losses in retirement can reduce the sustainability and longevity of a portfolio. Fortunately, the solution does not lie in giving up stocks completely. It is simply to increase your aperture.
How the S&P 500 does the heavy lifting for retirees
The S&P500 is one of the most resilient instruments available to long-term investors. The index gives you exposure to the largest US companies and automatically rebalances as the winners flourish and the laggards are replaced.
If AI one day delivers on its promises, the S&P 500 is positioned to capitalize on its upside because the companies that develop, monetize, and buy AI are all included in its positions. On the other hand, if AI disappoints in the coming years, diversifying the index will ensure that your portfolio does not experience downward pressure in concentrated doses.
Notably, the S&P 500 has an unparalleled long-term track record compared to any sector thesis. The index has survived the dot-com bubble, the 2008 financial crisis, a global pandemic and every macro-driven fear in between.
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Retirees who stayed the course and invested in broad index funds during these cycles not only recovered; they also managed to increase their wealth. Time in the market – not market timing – is the key pillar supporting wealth preservation at a stage when capital protection matters most.
How should retirees invest now?
If you’re a retiree sitting on AI positions that are in the red, the question isn’t whether you should sell. What matters is whether you are comfortable lowering your cost base and adding to these positions today.
If the answer is no, it may be time to reduce this concentrated exposure and move to broader index funds like the SPDR S&P 500 ETF Trust (SPY +2.11%)the Vanguard S&P 500 ETF (FLIGHT +1.91%)or the Invesco S&P 500 Equal Weight ETF (RSP +2.04%). As a sweetener, you may be able to use any losses on AI stock to offset your tax liability.
In addition to these rebalancing efforts, retirees should also hold short-term bonds or money market funds to help finance basic living expenses. This approach provides a liquidity cushion and allows you to avoid selling shares to raise money during market downturns.
The AI revolution could still be playing out among its most enthusiastic advocates. But a retirement portfolio should not bet the house on this or any story. Pension funds must be built to survive any economic cycle, whether euphoric or brutal. This is exactly what the broad market exposure through the S&P 500 is designed to do.
