The common theme I espouse to you here at Your Survival Guy is the elimination of risk and a focus on your margin of safety. Whether the risk be to your personal safety or to your financial portfolio, I want you to focus on preventing negative events from affecting you and your family.
After 2008, some retirees and those who were planning to retire understood the dangers of market risk, and began insulating their portfolios against future shocks. They spread out their investments among different asset classes, buying counterbalancers to smooth any market swings.
They also began focusing on income paying securities that would pay them through good times and bad.
But many did investors did not learn the lessons of 2008/09 and never adjusted their portfolios accordingly.
Now, as volatility rears its ugly head in equities markets once again, the AP reports some investors are getting worried.
The recent turbulence in the U.S. stock markets is spooking some older workers and retirees, a group that was hit particularly hard during the most recent financial crisis.
There’s no indication, though, that the recent volatility has brought about large-scale overhauls in retirement planning.
“There’s a lot of fear that if you have another event like 2008 and you retire the year before or the year after, you’re screwed. I’m not taking that risk,” says Mark Patterson, a recently retired patent attorney from Nashville, Tennessee. “There’s a huge fear of folks my age that they’re going to run out of money and they’re going to need to rely on the government for help.”
By the time the market bottomed out during the financial crisis in 2009, an estimated $2.7 trillion had been wiped out of Americans’ retirement accounts, according to the Urban Institute. Older Americans, in particular, have had a tough time recovering their losses. The Pew Research Center estimates the net worth of the median Baby Boomer household in 2016 was still nearly 18 percent shy of where it sat in 2007.
If your portfolio suffers devastating losses during retirement, you may not have time to wait for a recovery before you’re forced to sell shares at depressed prices to pay for your day-to-day expenses. The arithmetic of portfolio losses is too steep. The amount of risk a retiree would be forced to take on in order to rebuild his or her portfolio would be too great to bear for anyone in that age group.
It’s best to start balancing your portfolio now. Get ahead of any market turbulence by developing a retirement plan, and working with an advisor who can help you achieve your goals while minimizing risk. Don’t let inertia prevent you from protecting your hard earned assets. If you haven’t already done so, start today.