If you’re 5 to 10 years from retirement there’s a lot to be worried about these days.
“What, Me Worry?” (Alfred E Neuman)
Apple, the largest capitalization stock in the country has lost $30 billion in value since February. Commodities prices are crashing and are down the most since the Financial Crisis with 18 of 22 commodities in the Bloomberg Commodities Index down more than 20%. Oil alone recently hit a 13 year low! China’s stock market is crashing, Greece is almost literally imploding and the Fed is hinting at raising interest rates in the very near future. Meanwhile, the number of people in the US that have dropped out of the job market and the number of people who are on food stamps have both reached record highs. Will all these negatives finally burst the US market bubble and result in another 2008?
The Odds Of A Major Correction Seem To Be Increasing
We don’t know, although the odds seem to be increasing. What we can be sure of though is how well our retirement portfolios are or are not protected. If you are in your 30’s or 40’s and these current worries result in a large market correction you have 20 years to make back your losses and move ahead. If you are in your late 50’s to early 60’s you don’t have 20 years. A large market correction at this time will change when and how you retire and not for the better. If you were planning to retire in 2009 it took you a minimum of 5 years to get back to the point you had reached in 2007.
What’s Your Plan?
The really important consideration here is not whether the market corrects tomorrow, but whether you’ve transitioned from growth at all costs portfolio to a protected growth portfolio. Have you adjusted how your portfolio is positioned to protect 30 to 40 years of savings from the next major downturn? Don’t assume that you’ve diversified away your risk and don’t assume that moving money into bonds or target-date funds will protect you. A lot of conventional wisdom about portfolio management hasn’t worked well for the last 15 years.
In other words, the really big deal here is whether you’re controlling the risk in your retirement portfolio or are just hoping that the market will continue higher? Sooner or later it won’t.