These last couple of weeks have been interesting, to say the least. The COVID-19 (Coronavirus) outbreak has created a wave of social and economic panic. But we say this has been good for those in or near retirement, and here are two reasons why.
The first reason is that this was not a major crash. We did not see a dot com bubble or real estate bubble burst. But it was enough to test investors’ resolve. There are a lot of people out there approaching retirement or in retirement that seem to think they love high risk. But you’ve heard the saying, “high risk, high reward”. We shouldn’t take this out of context. Remember, it’s really, “if you take high risk, you can get a high reward”. This doesn’t mean that taking the risk means you will get the reward. There is a potential downside. And the higher the risk, the greater the potential downside. Most investors have gotten used to the longest bull market in history. For the last 10 or so years, the status quo for most people has been, throw money in the stock market and you’ll make money. But this 10%+ decline in a week is a good reminder to us all that the market can go down. The 90’s were also a great time to be an investor, it seemed that anyone could make money. At least this time it wasn’t followed by 2000-2003 like the 90’s, but it feels familiar.
The second reason is that this is a good test for retirees’ portfolios. So many retirees depend on their assets and nothing else for retirement. It seems that most pension benefits have gone away and the little most people get from Social Security isn’t enough to comfortably live on. Because of this, it comes down to how much you saved. And that determines the life you get to have and enjoy in retirement. So, when a double digit drop in a week happens, this should give a sample of what is to come when the market does take the next tumble. How did you do? If you follow the principles of retirement planning, then you probably didn’t worry.
Looking at the market drop in hindsight always provides clarity. As cliché as that saying is, this was a good time to snap back to reality. The market doesn’t always go up, it can go down. There is a pattern of markets cycling, and we are overdue for the next crash. So, when you look at your portfolio and how it handled this crash, consider what might happen when the next 2008 crash hits us. We hope you look at this drop as a good time to reflect on your portfolio. In a sense, this was a test. Did you pass?
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