Did you know the S&P 500 fell 14.40% from January 3, 2000 through December 30, 2011. No gains at all! There were a few good years in there, such as 2003 and 2004. The market did well in 2006, and 2009 and 2010 were exceptional years. But the losses in 2000-2002 and in 2008 wiped away many investors’ gains.
So what do you do now? Well let’s start with the 70/30 rule I learned years ago. If you’re retiring or nearing retirement, 70% of your money should be invested safely and 30% could still be invested in the market. If the stock market loses 30%, you are only losing 30% of 30% of your money because your other 70% is invested safely. Thirty percent of 30% is only a 9% total loss. If the market is down 40%, you’re only down 12% total. Even if the stock market is down 50%, you’re only down 15%. A 15% loss is a whole lot better than a 50% loss.
If your safe money averages 6% and your 30% in the market averages 10%, your overall return would be 9.3%. That’s great because that should help you maintain your current standard of living, and 9.3% is a pretty good return today. This is a concept worth considering that could work well for pre-retirees; though it’s not guaranteed to.
The stock market has changed, adding new and improved products, such as market-linked CDs that are FDIC insured, and could make you from 6 to 10% in a given year. ETFs have become popular. Index annuities can offer returns ranging from 5 to 9% while protecting your principal. Gold went on a tear over the last 10 years averaging around 18%. This precious metal has increased since 1971 at an annual rate of return of 9% a year. It’s been down a few months, but it’s starting a climb back up. I think gold is an excellent long-term investment.
The idea I’m trying to portray here is consistent reasonable growth & income with safe strategies and concepts. Because we need to maintain our lifestyle in retirement for 20, 30 and maybe even 40 years, we need to be cautious but optimistic. We need to avoid horrendous losses to our retirement nest eggs.
How would your portfolio perform if we had another 9/11? What about Black Monday in October 1987 when the Dow dropped over 22% in one day? We must have financial strategies that are safe and work in all types of markets: a strong bull market, a poor bear market, or somewhere in between. We need financial strategies that provide us with a consistent flow of income we can count on.
When I talk with my clients we address their needs, goals, and desires. We need to know how much income they need each month. When do they want to start drawing income from their investments along with Social Security and maybe a pension? Will they have enough income to last them for the rest of their lives? That’s our goal for each of our clients, and we use all the latest techniques and strategies to fulfill their goals and dreams. Are you going to have enough money to last your lifetime? That’s the million dollar question.
David Tucker is a retirement planning specialist out of South Daytona, Florida who focuses on helping clients reach their retirement goals through safe investments with regular, positive returns. To learn more about David or how he can help you reach your retirement goals, call his office at (386) 761-9401.