What Goes Up Must Come Down: How Retirees Can Prep for Potential Market Downturn

What Goes Up Must Come Down: How Retirees Can Prep for Potential Market Downturn

01/10/2018 19:00

If there is one constant in the financial world it is change. As monies change hands and markets change directions, it’s important to plan and be prepared for all the twists and turns inherent in investment. The stock market has been on an upswing for the past nine years, but will this continue? And what will happen to those whose money is invested in the market if it doesn’t?

“People have been lulled into complacency thinking the market will continue the way it has been without planning for the downturn,” says Craig Kirsner, principal of Stuart Estate Planning, a Coconut Creek, FL-based full service financial planning firm. “Historically, there’s been a recession every five to seven years. While it’s great that that hasn’t happened yet in this last cycle, the key word here is yet. Eventually, there must be a downturn and so it’s crucial to plan for it before it happens.”

One way in which retirees and would-be-retirees can plan is to get an accurate assessment of how much risk they are currently taking with their money and if any of that risk can be ameliorated. What is the best way to assess risk? Kirsner notes that it isn’t enough to rely on someone else’s meanings of terms like “conservative” or “risky” because they can mean different things to different people. “Stockbrokers live in the world of risk so what may be ‘conservative’ to them isn’t what’s conservative to someone who isn’t in that world,” he adds. In place of imprecise language, Kirsner advocates for getting down to concrete numbers and assessing risk tolerance and actual risk on a quantifiable scale.

When quantifying and comparing one’s risk tolerance to the level of risk at which their money is currently residing, investors may—and often do—find that they’re taking greater chances with their money than they thought. Whether one desires to invest in the shallow or the deep end of the proverbial pool, understanding where one is standing financially can help avoid ending up in an empty pool. “Knowing is more than half the battle,” says Kirsner. “In the event a retiree does find that he or she is taking greater risk than they are comfortable with, it’s advisable to move some assets to more sheltered positions.” But the time to do that, he adds, is before any major shift in the market and before the risk becomes liability.

Thinking of some of the ways to avoid loss and protect one’s hard-earned assets, working with a certified fiduciary can be a large step in the right direction. Fiduciaries are required by law to act in the best interest of their clients, which is an important safeguard for consumers. As well, understanding cost-benefit analysis, even on a simple level, can help investors gain a clearer picture of their financial standing. Kirsner notes, for example, that based on real market gains, an individual would have to gain back 42% to break even from a 30% loss in their holdings and a whopping 100% to break even from a 50% loss in assets. “The greater the percentage of loss, the more exaggerated or significant the percentage gain one would have to have just to get back to where they began,” he cautions. As such, it is helpful to see the potential loss in terms of what it would take to recover and to take that into consideration when building a portfolio.

The first step to making the right moves is a thorough portfolio risk analysis to help provide a firmer understanding of where one’s assets currently sit and the risk to which they are actually exposed. “My main concern for people is that they often have way more risk than they want or need,” says Kirsner. “Hope is not a retirement plan and hoping that things will continue as they are defies historical trends. Preparation is absolutely essential.”

There’s no form of investment that doesn’t put money in jeopardy, but understanding one’s levels of tolerance, moving one’s money to more sheltered positions, understanding cost-benefit, and ensuring that one’s financial advisors are fiduciaries bound to act in one’s best interest are all moves toward lowering risk and protecting one’s capital. While no one can predict when and a market shift will occur, it’s certain that one will and when it comes to a lifetime of earnings, it is always better to be safe than sorry.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Stuart Estate Planning Wealth Advisors are not affiliated companies. Stuart Estate Planning Wealth Advisors is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.  AW12175281

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