February brought us some difficult times within the stock market, and some investors felt a bit shaken up. Sometimes these feelings lead us to make large assumptions, such as, “the stock market is too risky” or “I won’t play the stock market after I retire”. But is that really true? Should you avoid stocks after you retire?
Playing it safe versus risking it all. Once you’ve retired, you’re living on the assets you’ve built throughout your career. This might mean a diversified portfolio that includes stocks and bonds, or maybe you purchased an annuity contract, or perhaps you still own part of a business or some real estate. The point is, you need a certain amount of income that is very safe, so that you can continue to provide at least a livable budget for yourself.
On the other hand, we all know that “safe” investments are usually the ones that provide low returns, whereas risky investments are the ones that carry the most potential – for profits or losses. It’s those losses that worry you. That’s why most retirees switch to a more conservative investment approach after they retire. They know it’s harder to make up for losses now, but at the same time do desire at least some growth.
Consider your “livable” budget. How much money do you need, to cover living expenses, debts, and basic necessities like food, gas, and medical care? Most retirees seek to generate at least that much income annually, via a relatively “safe” means. On the other hand, the proceeds of assets that are invested in slightly more risky, growth-oriented vehicles can be utilized for optional expenses like travel.
Look at the situation this way: Can you afford to avoid stocks entirely after you retire? If you’re generating so much income otherwise, that you have zero desire for growth, then this might be a possibility for the most cautious among you. But in most cases, we all need the potential for growth, even after retirement… We just need to balance that need with some safety.
Remember to think in the long term. Last month was scary, but in most situations there’s no need to shift to a fear-based strategy. What goes down can also come back up, and we always remind our clients to consider long-term growth over short-term, temporary market swings. In the grand scheme of things, it is entirely possible that last month was just a blip on the long-term radar, and panicking now could be detrimental in the future.
But of course, we’re here for you if you’re feeling worried. Give us a call, and we’ll discuss your portfolio allocations, and help you decide if your investment strategy still matches your risk tolerance and need for growth.