None of us like to see our portfolios decline in value. Market volatility is unsettling and can rattle even the most disciplined of us.
We've discussed that logically you know your financial plan asset’s mix should be adjusted during annual reviews for changing goals and time horizon. But in the face of extreme market swings, as now, you may have a hard time remembering that – especially if you’re close to being or already retired. We are here to help. If you’re tempted to move your assets to cash when the market drops as it did in the first quarter, weigh your decision against the following issues first:
1. Losses – You lock in your losses by moving to cash when the market is down. The problem for most is not only going to cash too late, it’s getting back into the market too late. If you are retired and relying on your portfolio for income, your withdrawals should generally be between 4% and 6% of your assets each year lasting for about 20 - 30 years. If you are within that range your portfolio should be built to withstand market fluctuations as we are experiencing now. Remember, such fluctuations are a normal part of investing. Given your asset mix your portfolio has the potential to rebound from such market declines over time.
2. Getting back into the market – Of course, the ideal is to buy when the market is low and sell when it is high. But that’s not realistic as discussed above investors tend to do the opposite.
3. Going to cash can jeopardize your goals by missing the market’s best days.
- For example a hypothetical investment of $100,000 in stocks between 2000 and 2019 based on S&P 500 index suggest an average annual return on that index would be about 6% per year.
- If you gotten out of the market during those 20 years and missed the best 25 days of market performance according to the S&P 500 average your account could have lost $9,000. On the other hand if you stay through the 20 years based on the S&P 500 average 6% Account could be worth $320,000 by 2019 or $220,000 more than your original investment.
We believe in a buy, hold, and re-balance strategy to navigate taking planned withdrawals. Let's discuss this hypothetical example together - hopefully it has given you some resolve to stick to our plan, meet with us to review your goals, risk tolerance, and retirement spending needs. Through planning and managing your portfolio to align to your overall financial goals, we can weather these times together and keep you on track.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions. Keep in mind that rebalancing may have tax consequences and transaction costs associated with this strategy. Please consult with your tax advisor regarding your personal situation. The S&P 500 index is unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results. (05/20)