Avoid "Unpleasant Bumps" in Retirement

The Wall Street Journal’s Mia Lamar has written a profile of the high-risk Singaporean hedge fund, Quantedge Capital Pte Ltd. The fund has had wild success, raking in 27% average annualized returns since inception in 2006. No one can scoff at the those Madoff-like returns. But it’s something the fund wrote in its August investor letter that stuck out to me. “…Our investment model delivers high returns over time, at the cost of unpleasant bumps along the way.”

Investors nearing retirement, or those already enjoying their life after work, don’t have the time or tolerance for “unpleasant bumps.” A strategy that avoids big drops in portfolio values can set the retiree’s mind at ease and prevent savers from trying to play catch up by adopting even riskier strategies.

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Take a look at my chart on the Arithmetic of Portfolio Losses below. Taking a “small” loss of 5% demands you generate a 5.3% return to get back to even. But taking a loss of 40% demands you generate 66.7% to get back to even. In retirement you don’t have that kind of time. Adopting a strategy that avoids risk in the first place, and generates regular income for your expenses will put any investor’s mind at ease in retirement.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.