As the investment markets continue to roil we should all review our investment choices to make sure we are best positioned to ride out the storm with the least amount of damage.
It has been quite a few years since the stock market was this volatile and many investors have gotten into the market and have not witnessed its downside. A review of the stock market’s history would be informative. In the post-World War II period since 1945 (70 years) the stock market has weathered 59 pullbacks of between 5% and 10%. That’s almost one per year on average. On average, it took one month for the decline to unfold and two months for the market to return to its previous high.
Over the same period the market declined between 10% and 20% on 20 occasions including the current one we are now experiencing. That’s an average of every 3.5 years. Over the previous 19 occasions, it took the market 5 months on average to reach the bottom and another 4 months to recover.
Market declines of over 20% are known as “Bear Markets.” These have occurred 12 times in the last 70 years. About every 6 years on average. Bear Markets test an investor’s patience and commitment. On average it took 14 months to hit the bottom and another 25 months to break even from the bottom.
Notice that in all of these occurrences that the market did recover to its recent high and that the market declines were all temporary.
The instructional part of this review is to make sure that your portfolios are structured to withstand these temporary declines and that they can support your continued withdrawal of necessary retirement income.
It is vitally important that you maintain a balance between stocks, bonds and liquid cash so as to ride out any extended market declines without having to sell any of your stocks while they are down. Your ability to sustain your withdrawals from the cash and bond portions of your portfolio are vital so as to not deplete your portfolio before it’s time.
We would be pleased to review your portfolio in a complementary meeting and to offer suggestions to improve the longevity of your investment portfolio and its ability to generate an ever increasing lifetime retirement income. Please let us know if we can help you ride out these uncertain times.