Are we there yet?
March 3, 2014
by Brian Wolf

Anyone who has taken their kids on a driving family vacation will understand and appreciate the title. Are we there yet?

I remember riding to my grandma’s house for holidays when I was a child and although it was less than 100 miles away, it felt like an allday trip. If you are anticipating something, it always seems to take longer. For example, going to my grandma’s house took much longer than coming home from grandma’s house. It’s all in the anticipation of the event.

In 2008, the market had a loss of around 37 percent. This was extremely painful for retirees, as well as working Americans. Many people experienced losses of 40 and 50 percent during that time period. Most people still remember that pain because in some cases, it took 10 or more years to get the losses back. Many of those retirees who were taking money out on a regular basis to supplement their retirement will likely never get back those losses. One of the painful lesson, to be learned was that buying into the market and simply holding it (buy and hold) has some major risks and pitfalls.

During the last five years, the market has produced significant gains, but if you have been following the stock market. Recently, you will know that the market has had some significant losses this year. The burning question out there is whether this represents the beginning of a large drop (think 2008) or if it’s nothing more than normal fluctuation during a rising market period. In other words; are we there yet?

I believe that most knowledgeable financial advisors would tell you that the market gains have to do with the Fed’s efforts at massive quantitative easing (quantitative easing = printing money). And the Fed is making no secret of the fact that it is ready to wrap up that agenda.

So if the Fed stops printing mon,ey, and that action is tied to supporting stock prices – well, you can probably figure it out from there.

So what should you do now?

If you are retired, or retiring in the near future, then the most important and first thing you need to do is protect your nest egg against potential downside market risks. I believe that now is not the time for you to get greedy it’s the time to be defensive, which in retirement is often a really good idea. Perhaps you no longer have the time to make up losses like you once did.

If you are still working and have a number of years to go, then consider using the rule of 100. Your age represents how much of your portfolio should be in safer accounts, and the difference (100 – your age) is what you could expose to market risks. The older you get, the more conservative you may want to be.

This simple approach can work very well as you build a portfolio leveling out your returns. Give it a try.

As always, if you want to discuss your retirement planning with our team, feel free to give us a call.

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