Atlanta, Georgia – Many people believe that investing all of their retirement assets in equities is the best way to ensure long-term growth. While equities do provide potential for growth, it’s important to look beyond just the long-term averages to fully understand the risks involved.
When planning for retirement, it’s common to rely on averages to project future growth, but this approach has its limitations. The markets have a history of volatility, with periods of significant losses followed by substantial gains, making it difficult to accurately predict future performance.
Historically, the markets have experienced flat periods, with zero return over a span of 10 years every 20 years or so. This can pose serious challenges for retirees who have all of their assets in equities and rely on a fixed percentage withdrawal strategy, as they may face significant financial strain in a flat market cycle.
The average return over specific periods may give a false sense of security, as it doesn’t account for the impact of market volatility and potential flat cycles. This is a critical factor to consider when planning for retirement income and managing a portfolio, as the sequence of returns can play a significant role in the long-term financial outcomes for retirees.
When evaluating different investment options, it’s important to consider the potential impact of market volatility and flat market cycles on a retirement portfolio. Diversifying assets into less risky investments or products, such as annuities, can help mitigate the impact of market fluctuations and provide a steady stream of income for retirees.
One approach to managing risk is to utilize a Principal Guaranteed Reservoir™, a strategy that involves protecting a portion of assets from market downturns while allowing other accounts to recover. This can help retirees navigate through flat market cycles without locking up assets for life in annuitized income.
In conclusion, when planning for retirement, it’s crucial to take a balanced and deliberate approach to portfolio management and income planning. While there is no perfect investment strategy, being aware of the potential risks and considering a variety of investment options can help retirees build a more resilient retirement plan.
(Note: This article presents the views and recommendations of the contributing adviser, and not those of Kiplinger editorial staff. Adviser records can be checked with the SEC or FINRA.)