After a terrible year, what should you do with your retirement savings?

Many investors, seeing disappointing returns for retirement accounts, are turning to their financial advisers after 2022's downturn in stock and bond markets and asking, "What now?"

As contrary as it may sound to some, the answer in a nutshell is to stay the course or make small adjustments. We turned to Thrivent Financial's Dave Kloster, who helps oversee 2,300 financial advisers; and John Foster, senior adviser and investment strategist at JNBA Financial Advisors, to get more information. Here are their responses, edited for space and clarity.

Q: What advice would you give to middle-class folks concerned about retirement?

A: Despite the negative returns in both the broader equity and fixed-income markets in 2022, "Thrivent recommends investors stay the course, take a long-term approach and avoid the urge to panic and make significant changes to their plans," Kloster said. "For instance, leaving the equity market now may lock in losses that could be recovered over time by staying invested. History also shows that bonds can recover and continue to play a key role in a diversified portfolio."

Q: How does a financial plan guide investors through emotional ups and downs?

A: The plan put together by client and adviser should serve as an anchor.

"When people understand the purpose behind their investments, it can be easier for them to maintain perspective and limit the temptation to react to short-term market movements," Kloster said. "Making big adjustments in light of market conditions can be a mistake that could actually worsen investment performance over time. Economic cycles come and go. You usually want to remain invested unless you have made a calculated decision to leave a security and leave the market."

A: A rebalancing bonus involves selling something that's high in order to buy something that's down, such as selling stocks to buy more bonds or vice versa, depending on which class was up or down, Foster said. However, stocks and bonds generally are down this year, forcing investors to look deeper in their portfolios to get a rebalancing bonus.

Foster advises looking at equity holdings to make style-level changes or even sector-level changes.

"Value stocks are down low-single digits this year while growth stocks are down 30 percent,'' Foster said. "There's a big difference between the Dow and the Nasdaq. So you can get more of a benefit there."

Or you can take the rebalancing down to the sector level: "Energy is up almost 60 percent while consumer cyclical companies, companies like Target … are down 35 percent," Foster said.

Q: How often should investors rebalance or assess their goals?

Foster suggests investors should periodically reassess their long-term goals and their tolerance for risk. New long-term goals or events like a significant change in income, starting a family, planning to buy a house or pending retirement can be a good time to make those reassessments.

Investors with longer time horizons, those under 50, may consider an 80/20 portfolio of 80% stocks (which are typically higher risk but offer the chance for greater returns) to 20% fixed income that includes government, municipal or corporate bonds (typically less risky but offer less return). But as investors get closer to retirement or milestones they can take less risk by moving toward a 60/40 equity to bond portfolio.

Q: What about opportunities in fixed-income securities now that rates are rising?

A: "There might be people that say, you know what, if I can make 4% or 5% in fixed income, I'm comfortable with that," Foster said. "There is the opportunity to make money in bonds for the first time in a long time."

Why? Interest rates are higher. For the past several years, they were below the stock market yield, so more money could be made on stocks than bonds, he said.

Q: Rebalancing, periodic selling and buying to get back into your asset-allocation plan, will change over time, correct?

A: "Generally speaking you will get more conservative as age and time horizon shrinks," Kloster said. "You want to be sure the financial plan tells you how much [retirement] money you need and when. That can be done at least annually through asset-allocation targets.

"Rebalancing will help you sell the winners," he said. "Rebalancing annually is pretty low risk, even if you only have a 5 percent [year-over-year asset shift]. And you don't have the tax consequences in tax-deferred retirement accounts that you might with a taxable account. The discipline brings you back to your [asset-allocation] target."

Q: Most young savers with decades to invest are only invested in 401(k) or similar plans whose options are generally limited to mutual funds. How should they look at their portfolios?

A: "They should look to have large-cap, small-cap and international stock funds and then an appropriate amount of bond funds based on willingness to take risk and time horizon. Individual stocks have some tax advantages over funds, but those really can't be taken advantage of in a 401(k)," Foster said.