A reader submitted the following to question to the Minneapolis St. Paul Star Trubune, and was published in 2001…
Q: “I will be 61 soon. I am healthy and energetic, but not employed. I have $420,000 in three IRA accounts, down from $800,000 in January 2000.
I am with a full-service broker. A money manager handles each IRA, and I am paying 2 percent for the service…”
What a terrible situation. It appears this person may be in retirement, but at the rate his or her nest egg is declining, they may not be for long! During the timeframe the question was submitted, the S&P 500 was undergoing an approximate 50% decline. That period was one of two periods of significant market declines since 2000, and is someday likely to happen again. He or she may have ended up going back to work, or reducing their lifestyle!
Perhaps the broker on this person’s account advised them that an Investment Posture would be just fine. An Investment Posture is the positioning of investments with the belief that they will not be worth less by the time they are needed. Many advisors follow this approach by citing statistics reflecting the stock market’s positive performance over the long term. Investors are told not to worry – that when the market goes down, it always comes back. Investors in the Japanese stock market may beg to differ – their market has been down since 1989! (see graph below of the Nikkei)
An Investment Strategy that seeks to protect assets follows a plan for what one will do if things go right, and what one will do if things go wrong. Instead of watching one’s account fall by 50%, an alternate approach is to begin coming out of the market in the early stages of a decline in order to avoid the large losses. While no investment strategy can guarantee success, having a plan can help one to sleep well at night!
Are you near retirement, or close to retirement? Do you have an Investment Posture, or an Investment Strategy? Perhaps it would be prudent to assess your plan for asset protection if the market begins to fall from the current all-time high.
Graph produced by Dorsey Wright and Associates. The postings on this site are my own and do not necessarily represent Dorsey, Wright & Associates positions, strategies or opinions.