Relying on the Stock Market? Nothing Goes Up Forever
By Roger Wohlner
NEW YORK (AdviceIQ) -- Are you a retiree with most of your retirement investments in stocks? Good idea? No. Even as the markets near or notch records every day, you have to stay conscious of the risks of not diversifying between classes of assets.
A recent Wall Street Journal article discussed how retirement savers are putting more money into stocks. Two excerpts:
If I understand Chastain's situation, he sold out about halfway through the market decline, likely missed a good part of the ensuing market run-up and now bulks up on stocks five-plus years into the market rally. Also see: 2 Warning Signs for the Market Alternatives beyond stocks, bonds and cash, the new darlings of the mutual fund industry, have merit but separating alternatives' wheat from the chaff is hard for most individual investors (and for many advisers). With the stock market flirting with all-time highs and in year six of a torrid bull market, returns are even a bit more at risk than on March 9, 2009, when the Standard & Poor's 500 bottomed out. Let's say an investor's $500,000 portfolio has 80% in stocks and the rest in cash. If stocks drop 57% as the S&P 500 did from Oct. 9, 2007, through March 2009, the portfolio shrinks to $272,000. Not devastating if this investor is 45 with 15 to 20 years until retirement. If this investor is 68 and counting on this money to fund retirement, this drop can change the game. Let's further assume this occurs just as this investor starts retirement. Using the classic 4% annual rule for retirement withdrawals, this investor might reasonably withdraw $20,000 annually from his nest egg before this market decline. After the 57% loss on the equity portion, this withdrawal amount declines to $10,880, a drop of 45.6%. Also see: Why Your Gardener Should Be Your Financial Adviser diversifying tool. Investors are notorious for historically bad market timing. Are you willing to bet your retirement the markets will keep going up? Or perhaps you think that you might be able to get out before the big market correction? Nothing goes up forever; resurgences take time after a market plunge. Consider some financial planning to include an appropriate investment allocation for your stage of life and your real risk tolerance. -- Roger Wohlner, CFP, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations and endowments. Please feel free to contact him with your investing and financial planning questions. Check out his Financial Planning and Investment Advice for Individuals page to learn more about his firm's services. Roger is active on Twitter and LinkedIn. Check out Roger's blog The Chicago Financial Planner, where he writes about issues concerning financial planning, investments and retirement plans. He is also a regular contributor to the US News Smarter Investor Blog and has been quoted extensively in the financial press, including The Wall Street Journal, Forbes and Smart Money. Roger is a member of NAPFA, the largest professional organization for fee-only financial advisers in the country. All NAPFA Registered Advisors sign a fiduciary oath promising to act in the best interests of their clients. AdviceIQ delivers quality personal finance articles by both financial advisers and AdviceIQ editors. It ranks advisers in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisers so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many adviser rankings, although in some areas only a few are ranked. Check back often as thousands of advisers are undergoing AdviceIQ screening. New advisers appear in rankings daily.
Stocks accounted for 67% of employees' new contributions into retirement portfolios in March, according to the most-recent data ...
"What cash I have, I'm going to use to buy more if the market dips," said Roy Chastain, a 68-year-old retiree in Sacramento, Calif., who put an extra 10% of his retirement account into stocks in September, bringing his total stock allocation to 80%."
Follow AdviceIQ on Twitter at @adviceiq.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts