I’m sure you’ve been hearing a lot of people complain about how much they’ve lost in the market over the last few years. Maybe you’ve been among them, I certainly have (here, here and here). But the reality is, you haven’t really “lost” money unless you cashed in on those losses by selling stocks when they were down at those depressing values.
Last week, I wrote about my experience watching the market drop 46% during my first year of retirement. I retired with several years’ worth of expenses in cash, a healthy allocation to bond funds, some real estate, and the remainder in stock funds. Which means, that while the market tanked, the "losses" in my own nest egg were far less dramatic. That's the advantage of retiring with a diversified portfolio, in years of market turmoil, you don't lose money in lock-step with the market.
While the stock and real estate portions of my portfolio have yet to fully recover, my retirement nest egg is now only down 15% from the day I retired. Having the cash and bond assets to draw upon meant that I wasn’t forced to sell stocks and real estate when the getting was bad. Stocks have increased over 50% since those bleak days of March, 2009. By not selling when the market was down 46%, I participated fully in those recovered gains.
It wasn’t a cool head that prevailed, but the realization that I could not possibly pay my bills for the next 50 years if I sold all my assets and hid the cash in bonds, CDs, and my mattress.
I certainly could have invested 100% of my money in those safer assets when I initially retired, but since, over long stretches of time, bonds outpace inflation by a lot less than stocks do, I would have needed far more in my nest egg to quit my job. Delay retirement or accept some market risk. I chose the latter.
My thoughts on the subject over at U.S. News today, “Why Retirees Shouldn't Shun the Stock Market"
Retirement Planning Risk: Playing it Too Safe CBS-The Retirement Beat
Why Annuities Won’t Fix the Retirement Problem CBS-Retirement Roadmap
This is an article of Retirement: A Full-Time Job