- 2018 was the worst December since the Great Depression. The DOW was down -5.6% and the S&P 500 -6.2%. For reference the DOW lost -34% and S&P 500 -37% during the 2008 financial meltdown.
- Additional factors that increase investor anxiety
- Most market volatility since 2008
- Recency bias – the tendency to think what’s been happening will continue
- Loss aversion – people prefer avoiding losses vs. acquiring equivalent gains
- For more on investment biases check out: Our Biases Hurt How We Invest
- 3 Scenarios
- Roy’s situation
- Doesn’t have a pension
- Is not eligible or has not opted to receive Social Security
- Relies on their IRA and/or after tax investments for income
- Is not old enough to qualify for Medicare
- Sufficient cash reserves – not dependent on selling securities to meet living expenses
- Retiring into a declining market
- Sequence of returns risk
- Roy’s situation
- Roy’s investments are 100% managed by his financial advisor
- Roy was feeling considerable anxiety as his paper losses mounted in 2018
- He lost the equivalent of his outstanding mortgage
- His advisors apparently rebalanced his portfolio which considerably slowed down his losses which allowed Roy to “relax”
- This is essentially my case. Our investments are grouped (logically) into buckets. So our paper losses occurred in money that was sitting 10 years out.
- In this scenario, it’s more about perspective and being prepared.
- Put 2018 into perspective. In 2017 the DOW rose +25% and the S&P 500 +19%. This exceeds the historic average annual return of 7.8% for the DOW and 9.8% for the S&P 500.
- Both the DOW and S&P 500 pay dividends. The DOW ETF (DIA) is currently yielding 2.25% and the S&P 500 ETF (SPY) 2.04%. The receipt of dividends reduces the impact of capital losses.
- On average, markets are up 3 out of 4 years. So over time, the trend is up but it is not linear.
- Portfolio diversification and rebalancing can reduce your losses.
- Consider using a bucket strategy which separates investment types into time-based “buckets”.
- Sequence of returns risk means the order in which good and bad years occurs can have a powerful impact on how long retirement assets will last.
- Affect is greater for people who have to rely on withdrawing money from their stock market accounts vs. someone who can meet their expenses through pensions and SSA
- Ensure that retirement planning includes contingency
- Structure income to cover non-discretionary expenses. This can include pensions, SSA benefits, bond ladder and annuities. This has the added benefit of lowering the volatility of your portfolio and thus sequence risk.
- Dial down spending and reduce expenses to lower withdrawal rate
- Consider delaying retirement, i.e. the one more year effect
- Change SSA or pension election options
- Search for income opportunities
The beer segment begins at the 11:20 mark.
- Squatter’s Hop Rising Double IPA
- Squatters Pub Brewery opened in downtown Salt Lake City on September 5, 1989
- Salt Lake Brewing Company now operates 5 brewpubs, a wine and ale house and employees over 500
- “A mighty hop-lover’s dream. Hop rising adds malty backbone to an intense Imperial IPA. This insanely smooth dry-hopped ale has everything: 9% ALC/VOL, 72 IBUs”
- Available in 19 states mostly in the west but also in Wisconsin, Nebraska, Rhode Island and MA
- According to the Great American Beer style guidelines an Imperial IPA is between 7.6-10.6% ABV and 65-100 IBUs.
- $10 – $11 dollars for a six pack
- Not one of our favorite double IPAs. Would not buy it again.