Market Panic and Retirees

 In Advisers, Asset Allocation, Expats, Expectations, Financial Planning, Forecasts, Future, Goals, Happiness, Investments, Personal Finance, Retirees, Retirement, Risk, Social Security

The period of 2008 and 2009 was a scary time for many investors. If you don’t remember it well, many investors panicked in the period now referred to as the Great Recession.

The markets and domestic and world finances dominated the news cycle. (At the time, I worked for VALIC, a subsidiary of AIG. As AIG teetered on the brink of failure, due to the performance of one of its divisions, it became a target of anger and scorn.) Many people were on edge, and there was uncertainty about how bad the markets would get.

I am sure that some postponed their retirement plans. In addition to the short-term losses they saw in their portfolios, how could they just walk away from their income in the midst of a financial catastrophe? Who knew how low their investments were heading or how long they would take to recover.

What will the next panic look like, and when will it happen? What could precipitate it? Will a Western government default on its debt? Will a major corporation fail? Or a couple of them? Will the US government credit rating be downgraded?  Will the value of the US dollar come seriously into question?

When this happens, how far down will the US and worldwide markets plummet? 45%? What about 60%? Or 75%? When they plummet, will they rebound in three months? Or nine months? Or maybe four years?

Of course, markets will fall. But they will also correct (and move down again). I have no concern about a market correction. These are non-events that happen with some regularity. Most retirees will handle them without issue.

I am finding that many of my clients who have just retired or are on the verge of retirement are quite confident that they can handle a panic without changing their investments. But I am concerned many of them are overconfident. No one knows how it will happen, what it will look like, or how long it will last.

As a retiree, are you just going to sit there while your portfolio is cut in half? Can you really do that? It sounds easy now, but you may feel differently in the midst of it.

The worst thing you can do is be dishonest with yourself or unprepared for an event like this. If you have, say, a portfolio of 75% stocks and 25% bonds, the last thing you would want to do is bail out to cash when the pain gets to be too much.  

When the next panic occurs, there should be no need for a retiree to modify their portfolio! Their strategy should have factored in such an event. If you plan for this now, then regardless of what happens, you will be prepared. You should enjoy your retirement without worrying how the events of the day impact your livelihood.

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