The stock market has been plunging recently due to rising interest rates and inflation. So what does that mean for retired baby boomers who have finished saving?
risk analysis
When you’re young, the advice for surviving a bear market is pretty simple. Keep saving and investing and don’t run away from the market in fear.
However, retirees are at a major turning point in their lives and may not have the time to wait patiently for the market to fall. As there is no more income from work and it’s time for retirees to withdraw from their portfolios, they move from an accumulation mindset to a withdrawal mindset.
Financial planning is much more complicated for those who spend on shrinking portfolios rather than building them.
Monte Carlo simulation
Monte Carlo simulations are a great asset as they show a wide variety of potential outcomes. However, he has only one chance to succeed after retirement. As we enter the final decades of our lives, there is no time for trial and error.
There’s a lot of advice on saving and preparing for retirement, but not so much on how to make the most of your life after quitting your job permanently. With any luck, depending on when he retires, he will be able to invest for 20 to 40 years.
bear market history
There have been four bear markets in the last 30 years and five bear markets in the previous 30 years. These should be factored into your financial plans even after you retire. To counteract a bear market, you need to invest in a bull market.
a Portfolio of Vanguard 3 fundsIf 60% were invested in equities and 40% in bonds, that would represent an annual gain of 8.4% over the decade to the end of 2021. Considering interest rates were very low at the time, it would be a great return.
Although its portfolio has fallen by 20% this year, structured financial assets have experienced a significant bull market leading up to this year.
what about homeowners
If you own a home, you may have accumulated a substantial amount of assets. Even factoring in the 2008 housing crash, national home prices have risen 200% since the turn of the century.
lots of chances
Retirees now have the opportunity to add yield to their portfolios that hasn’t been available in over a decade. Short-term bond yields today are the same as junk bond yields a year ago. Expected returns on bonds are much higher than they have been in the past. Retirees must balance long-term growth needs with short-term stability when building durable portfolios. Growth has been the main driver of earnings over the past decade, so some stability will eventually return.
Bear markets can be painful, but they can also present a golden opportunity, so always be on the lookout.
