After the 2008 stock market crash, pre-retirees who continue to work and retirees who go back to work have an opportunity to invest more and build up a depleted retirement fund. What lessons can you learn from last year’s debacle?
Keep a cash cushion. You might set a goal of building up five years’ of spending money in cash. If you have ample cash reserves, you can tap those reserves during a bear market and keep longer-term assets such as stocks intact for an eventual rebound. For cash reserves, bank accounts are increasingly attractive now that the federal deposit insurance limits have been lifted (at least through 2009) from $100,000 per account per bank to $250,000.
Stock up on short-term bonds. In addition to cash, you might want to have some money in short- and intermediate-term bonds. Maturities might be staggered so some bonds come due each year. Alternatively, invest in a bond fund that holds such bonds. Bonds or bond funds likely will return more than cash yet they provide another layer of principal protection during bear markets in stocks.
