How safe is the Market?
When and where to invest
Have you ever heard the saying, “It’s not timing the market, it’s time in the market?” One of the biggest mistakes retirees make is that they think they will not lose money. They think that to be able to retire, they need to have their money at risk. They think that a good return is not possible with safe investments. Some actually think they will be able to successfully time the market, and sell their securities before the next great financial crisis swoops in and ruins your retirement. Millions of people were forced to delay their retirement when the “Great Recession” hit. If they wouldn’t have been overexposed in the stock market, they could be retired right now
The problem with too much Risk
Unfortunately, greed plays an integral part in the mind of the common investor. All too often, bad behavior takes over, forcing the right decision to take a back seat to greed. For example, the more risk you have, the higher the reward could potentially be. If you invest $100,000 into XYZ portfolio, and then lose 30% (or $30,000), most investors will force themselves to stay put until they make that money back. However, a 30% return doesn’t get them back to even. They have to achieve a 42.86% return. If that same person was drawing 5% of their principal out per year for income, then they would need a 53.85% return to get back to even! In order to avoid losing the money you desperately need in retirement, you have to remove some risk from the equation. Altering your safe to risk ratio is the first step.
What is my proper Risk/Reward ratio?
It is ok to have some risk in your portfolio during retirement. But, as you saw in the example before, having too much could wreak havoc on your income. Most people think they need to have their nest egg grow to a certain number, and if it does, that they will have enough money to retire. However, you should determine how much money you need to spend monthly in retirement instead. Once you know that number, you can determine a yearly amount you need to spend, adjust it for inflation periodically, and then set that money aside. This money would go into safe assets, so you could rely on the income for the rest of your life. Whatever you had left could then be positioned at risk. This money would grow for the long-term. An Investment Risk Review can help you develop this strategy