Planning for the next stock market “correction” or however you like to lose money

Seriously, markets go up and down, always have and always will and just about no one knows when or how far or for how long.

So, what to do?

Simple, allocate your investments based on 🤑 your age, 🤑 how long before you will need to use those assets and 🤑 how much of those assets you will use each year upon starting.

  • If you are many years from retirement, allocating for growth, meaning mostly or all stocks is your best bet. You have many years to recover from a decline and to take advantage of buy opportunities when the market tumbles
  • As you age and are say, within fifteen years of using assets in retirement it’s time to start hedging your bets modestly. That’s because early retirement may be foisted upon you and you have less time to recover, but you still need growth
  • In retirement some, but less, growth is desirable, while the ability to generate income becomes more important. REMEMBER, even in retirement you are not going to use all those assets at once, but over many years so a market downturn may be a tad scary, but not a disaster. The press cries that people were wiped out or lost their retirement funds is bunk, unless the individual panicked and locked in their losses by getting out of stocks at the low point. Many people set their investment horizon as the retirement date. That’s a mistake. For most there are 20-30 more years.

Following is my 401k asset allocation ten years into retirement. Given these are not my only investments and I have a pension as well, this may be conservative. However, the point is that if there is a stock market correction only about half my account is at significant risk of a decline.

On the other hand, placing all or the great majority of the account in stable value, would not at 1.52% return provide sufficient income to allow withdrawals for most people and not rapidly deplete the account.

The key point is you have to think about this stuff. You have to think long term, be realistic with your goals and do your best to stay the course and not panic. Easier said than done perhaps, but absolutely essential.

One comment

  1. I like to point out that my retirement job is CFO. My wife is still CEO and chairman of the board. Like most people, by the time you reach retirement you are managing the most assets that you probably ever have had in your life. My job as CFO is money management. What I don’t know will hurt me. As a good CFO, I seek out help from consultants when needed. I must not panic sell or move money around haphazardly. Just like credit card fees will get you so will missing out on a month’s worth of interest because you moved your money one day too early. As CFO, I know the only way to maintain my spending power is to invest in such a way as to earn more money than the rate of inflation. Inflation is currently and is usually higher than your basic saving account interest rate. The only way to earn more money is to be invested in some stocks or stock index funds. The stock market does go up and down. At the end of March, I was down almost -15%. This morning I am up +2% for this year because I did not panic sell. Inflation was reported at 1% on August 12th. I am invested 60/40% stocks / bonds and overall with my non investment accounts I am holding 53% stocks / 47% bonds & cash. I am about 20 years younger than you but our mix is about the same. It is working for me.

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