Do you Understand how Losses and Gains Can Affect Your Retirement?
If you have money in the stock market or money at risk and you’re in or near retirement, then you need to stick around and read this blog, because you have to understand that losses can hurt you more than gains help you.
Unfortunately, the market has been very volatile lately, so that means you need to be watching your assets much closer that you normally do.
While you are accumulating your assets, things functioned a lot differently, because whether you had the secrets of returns, meaning if you had retro positive or negative returns, if you had an average, you would lineup at the exact same spot when you have the accumulation. So if you have an average, it doesn’t matter in what order those sequence of returns are, but at the same time if we look at when you’re distributing your assets, the return and the secrets of those returns really do matter.
The reason for this is because losses hurts you more than gains help you. If you have a 10% loss in the market, you need an 11% gain to get back to break even. That’s right, you will need to gain more than you lost to even get back to where you started!
Now picture yourself retired, you lose 10% and then you have to take a withdraw out, so maybe it’s a three or a four or over even five percent withdraw out each year. Now that you’re down to a 15% loss.
If I lose 20% in the market, I need actually a 25% gain to get back to break even. A 25% gain is a great return, but it’s usually not that achievable if you are using a standard 60 to 40 stock bond mix.
Think back to 2008. Many people lost up to 50% in the market! If this happens, you’ll actually need a 100% gain to get back to break even. Picture this: you’re in retirement, let’s say with $500,000 of assets, you lose 50% of your portfolio. You went from $500,000 down to $250,000. You think you’re gonna be changing your lifestyle? Probably. If we look at the opposite it’s drastically different. If you have $500,000 and your money goes up $250,000, are you gonna change your lifestyle? Probably not much, if at all.
It’s important that you make sure to protect your investments above all else. Make sure you’re utilizing a retirement portfolio that can protect you from a lot of the downturns in the market. That doesn’t mean you have to get out of the market, just means that you should take less risk. And you should understand the potential for losses and gains in your portfolio.
You can still go for the good returns, you’re just not gonna get the big home run returns, but that’s okay because you also won’t get the big strike outs. So squeeze that risk down, go for some good average returns and you should avoid having these big losses, which then means you can have a comfortable retirement. If you want some answers on how do we do that, we can help show you the right way. Just give us a call or send us an email and we’ll make sure to set up a time to talk and walk you through everything.
If you have any other questions about how the market might be affecting you, please let us know and we’ll do another article about how the market can affect your own retirement.
I appreciate you taking the time to read this article on understanding losses and gains of retirement. Again, if you have any questions about retirement in Minneapolis feel free to come pay us a visit!