There could be more headwinds pushing the stock market next year.
Now may be a critical time for investors to reassess their portfolios.
Pivoting to lower-priced and dividend-paying investments can help reduce risk for investors.
10 Stocks We Like More Than the Schwab US Dividend Equity ETF ›
If you’re a retiree who invested in the stock market, you may be worried about staying invested in 2026. S&P 500 hit record highs this year, expensive tech stocks continue to rise, the economy doesn’t seem to be doing too well, and on top of that, there may be a big change in who heads the Federal Reserve next year. All in all, it can paint a disturbing picture, one that can suggest an accident is coming.
The natural question at this stage may be whether you should simply pull your money out of the stock market and put it in your bank account where you know it will be safe. While this may be the way to de-risk yourself, is this really the best decision to make for your finances in the new year?
Image source: Getty Images.
All investors, not just those in or nearing retirement, should take some time right now to consider stocks in their portfolios. Even if you’re not worried about a market crash, it’s always a good idea to periodically evaluate your holdings and identify where there are opportunities to reduce risk.
Simply taking all your money out of the market can result in lost gains if the market doesn’t crash the way you expect. Crashes can happen without much warning. Even if the ratings are high, there’s no way to know if a correction or crash will happen in a few weeks, months, or years.
That’s why making efforts to reduce your risk, such as moving away from expensive stocks and into more modest value investments, may be the better and safer approach. Investing in blue chip stocks that may be less vulnerable to a crash is an example of how you can reduce risk. This may include selling Costco Wholesalewhich trades at a price-earnings (P/E) multiple of nearly 50 and buying Home Depot instead, which trades at a P/E of just 24. Both are blue chip stocks in retail, but one is drastically less expensive than the other.
If you’re not comfortable picking individual stocks or simply don’t have the time to do so, it may be easier to invest in a quality exchange-traded fund (ETF) that offers a solid return. You can achieve strong diversification and generate dividend income along the way.
An ETF that may be ideal for this purpose is Schwab US Dividend Equity ETF (NYSEMKT: SCHD). It yields 3.7%, which is more than three times the S&P 500 average of 1.2%. Not only does it offer an attractive payout, but the fund’s expense ratio is just 0.06%, making it one of the best low-cost options for income investors.
There are about 100 stocks in the fund and they are fairly reasonably priced as the ETF has an average P/E of just 16, which is lower than the S&P 500 average of 25. There is a good mix of stocks from different sectors in the ETF, including energy, consumer staples, healthcare, industrials, financials and others.
While the portfolio isn’t full of spectacular stocks, there are solid dividend stocks within the fund, including Coca cola, Chevronand Bristol Myers Squibb. These are the types of stocks that can provide investors with good safety, stability and recurring dividend income.
There are other ETFs and dividend investments you may want to consider. But keeping your money in the stock market and simply reducing risk can be a better portfolio move than simply withdrawing, whether you’re in retirement or not.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Costco Wholesale and Home Depot. The Motley Fool has a disclosure policy.
Should retirees pull their money out of the stock market in 2026? was originally published by The Motley Fool
