Experts Attempt to Anticipate Market Disruptions As Clients Determine Their Risk-Tolerance.
The “lost decade” of 2000 – 2010 included four calendar years with compound losses, and has driven investors and professionals to re-evaluate asset allocations and distributions in retirement.
Twenty-first century investing perfectly illustrates the centuries-old adage, “What goes up, must come down.” After the strong returns in the 1990s, markets experienced annualized declines in 2001, 2002, 2003, and 2008 was a particularly painful year that still has new and recent retirees limping into a highly anticipated phase of their lives.
Though the impacts of down markets have, and can be, devastating, the cause – market volatility – is really nothing new. In fact, Bull Markets, defined as a drop of 20% or more, have occurred more than 30 times since 1900. Corrections, the term given to drops of 10% or more, have occurred more than 100 times in the same period. Watch the interview with
retirement income certified professional and investment adviser representative Tripp LeFevre address market volatility.
The fuss and angst over something so frequent as volatility can be traced to many sources, but here’s three:
1. The massive numbers of Baby Boomers hoping to retire soon don’t have the time to recover from another major portfolio hit, and that causes fear.
2. Retirees, and for that matter, everyone, can anticipate longer lives that require more asset sustainability. More than 50% of women will live past age 88.
3. Perhaps the biggest reason for nervousness about the unpredictable market volatility is that many investors don’t have portfolios aligned with their risk tolerances. As a general rule, men do most of a household’s financial planning, but it’s the women whose portfolios more closely mirror their risk tolerance. Hence the jitters when markets tank.
Proper financial planning that includes a retirement specialist and a strong risk-management element can help offset the value swings that result from unpredictable market volatility. A key benefit to this pro-active stance is that it’s based on math, science and the risk tolerance of the individual, and removes the emotion-driven reactions that often accompany market fluctuations.
Fixed-product asset investments, including appropriate types of annuities are increasingly present in well-planned portfolios. Particular types of annuities provide participation in upside markets, and protect against devaluations when market corrections and bear markets occur. Annuities are not stand-alone, though, and must accompany liquidity and growth components to achieve diversification.
Investors are well served by acknowledging and acting upon a tolerance for risk that allows them to sleep easily. What can be helpful is to visualize a mountain, and how the ascent represents asset accumulation, and how the descent represents distributions, where more accidents happen.
Although retirees cannot predict or control market volatility, appropriate and proactive cautions can be put in place to minimize or avoid potential harm, just like on the mountain.
Syndicated financial columnist Steve Savant interviews retirement income certified professional and investment adviser representative Tripp LeFerve on Navigating Risks in Retirement. Right on the Money is a weekly financial talk show for consumers, distributed as video press releases to 280 media outlets and social media networks nationwide.