Built for the Long (and Short) Run
Good Morning Relaxing Retirement Member,
Last Friday’s historic British vote to sever ties with the European Union was truly their “declaration of independence”.
After polls predicted just the opposite, citizens of the United Kingdom stood up for their freedom, and departed the EU.
Shock waves were immediately felt throughout the world’s financial markets.
Equity market prices quickly plunged as traders scrambled to assess the ramifications.
Saddled with nothing juicy to report, the mainstream financial news outlets were handed another crisis du jour to scare the daylights out of everyone and increase ratings.
Here are just a few headlines I just quickly viewed that I’m sure you saw as well.
- “EU leaders warn U.K. of exit talks”
- "Central bankers face conflicting pressures from Brexit vote”
- "Here’s how the weak pound could wreck the U.K.’s economy”
- “Why the summer crash of 2016 is about more than Brexit"
- “Brexit vote roils real estate markets”
- “10 hard-hit stocks to buy after the Brexit Bomb”
After reading these headlines, were you tempted to head for the sidelines until all of this “settles down”.
Did you visit the website to review the impact on your investment holdings?
Have you begun to question your spending?
If you had any of these temptations, I don’t blame you.
However, if you are built for the long (and short) run, there is absolutely no reason why you should!
How Are You Built?
Like all external events, watching prices (and the value of some of your Retirement Bucket™ holdings) rise and fall so quickly, and listening to all the ensuing “sky is falling” commentary, can be disturbing.
However, like all those before it, this too will be temporary, and it should not change your spending plans or your investment strategy in any way if you are built correctly.
First, we begin with the assumption that you need the investment returns that equities have historically provided in order to sustain your lifestyle spending needs in a world of rising costs.
Second, we enter the game knowing that equity prices and dividends have grown exponentially faster than inflation in the long run.
Third, we know from studying history that equity prices move up and down rapidly in the short run, and that the average annual peak to trough drop at some point during a given year over the last three decades has been 14.2%.
Given all of this, you have to assume that equity prices will continue to rise and fall rapidly in the short run over the rest of your life.
During this critical phase of your life when you are withdrawing funds from your Retirement Bucket™ to support your lifestyle, events like the Brexit vote fallout are precisely why we don’t recommend keeping 100% of your holdings in equities.
Instead, position several years worth (five is a good start) of your anticipated Retirement Bucket™ withdrawals in money markets and short term bonds whose prices have historically had far less or no price volatility.
This allows you to continue to spend what you have planned during times like these when external shocks temporarily knock down equity prices, and remain invested for the long term with complete confidence that you won’t have to “panic sell” at the wrong time to support your spending needs like the overwhelming majority of retirees.
Committed to Your Relaxing Retirement,
The Retirement Coach
P.S.: WHO do you know who could benefit from receiving my Retirement Coach “Strategy of the Week”? Please simply provide their name and email address to us at info@TheRetirementCoach.com. Or they can subscribe at www.TheRetirementCoach.com.
I appreciate the trust you place in me. Thank you! (The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)