With many of the financial markets trading at / near all-time highs, clients are often waiting for the “other shoe to drop” so to speak – thinking that trouble must be lurking around the next corner simply because the “market” has been so “friendly.” Yet historically, and ironically, new highs, over time, have been the norm rather than something to be feared. In fact, 1,084 new highs have been attained since the 1957 inception of the S&P 500 Index (Source: Bloomberg L.P., 12/31/19).
However, market corrections, pullbacks and perhaps the occasional crash are likely to occur. When such events occur, the single biggest “how” with regard to “how to “crash-proof” your retirement rests with one’s behavior – consistent, intentional and well thought out behavior. In fact, consistent behavior is the key to successfully navigating times of uncertainty and difficulty and achieving one objective.
Please note that the fact that times of uncertainty and difficulty breed great stress and anxiety is not lost on me as I have advised client and families for more than 27 years, during which time, we have witnessed the tech wreck of 2000, the events of September 11th and the great recession / real estate collapse of 2007 / 2008 – challenging times to say the least.
Further, and if history is an indicator, I suspect that we will inevitably witness other scary times – the cause of which is unknown.
Back to behavior.
“Crash-proofing” your retirement begins with portfolio construction and having insight, before adoption, into how the portfolio will behave in both friendly and unfriendly economic and investment environments. Having insight into characteristics such as “drawdown” (the period of time over which a portfolio might decrease in value and to what degree) and recovery (the period of time the portfolio requires to recoup losses) are invaluable in staying the course during times of uncertainty and difficulty. Also, having insight into what we refer as the “worst case scenarios” (statistical, historical decreases over the course of 1 month, 1 year & 3 years) is equally valuable in terms of staying the course.
After all, what’s lurking around the next corner during times of uncertainty and difficulty is human emotion, one of the most powerful forces to contend with – one which often trumps both fact and intellect in the short term and results in deep-seeded regret longer term.
Lastly, and for those who are in, or are nearing retirement, remember that you are planning / investing through retirement – not to retirement. With life expectancies increasing there is likely no more important realization and thus bears repeating – you are planning / investing through retirement – not to retirement.
Learn more about How to “Crash-Proof” Your Retirement with a professional at ICG next.
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The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.