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Retired Investor: Getting Through Difficult Markets

by Julie Jason

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We all want to achieve retirement security—and to maintain our sanity during volatile market periods. If we could only predict tomorrow’s markets, we would handily satisfy these needs—we would be able to sell before a market decline and buy at the bottom.

Truth be told, probably the single most important element of successful investing is recognizing that we are all handicapped by the inability to see into the future.

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About the author

Julie Jason directs the money management practice of Jackson, Grant Investment Advisers, Inc. of Stamford, CT. She is the author of “Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad,” (Sterling, 2011).
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A process I call “personal portfolio management” recognizes these limitations; it is a goal-oriented skill set that calls for making a series of correct investment decisions in circumstances that are never certain and enjoying, or enduring, the consequences.

Instead of eliminating the potential for loss, this process helps us measure and adjust risk to acceptable levels. It is based on the premise that mistakes will be made in assumptions and in execution, and builds in a mechanism to adjust course.

Let’s review some of the attitudes and skills needed to navigate through rough waters toward a secure retirement.

Attitudes

Your attitude toward investing will influence the choices you make as an investor and, in turn, can have a significant effect on your results. Think about the following:

  • Your investments will rise and fall in value due to many influences outside of your control.
  • Manage what is in your control: your cash flow needs and the types of investments you make.
  • Recognize that retirement investing is unlike the stock-picking you might have done when you were younger. Take a big-picture view of your finances and cash flow needs, formulate goals, and only then address the particular investments that can meet those goals.
  • Be particular about how you judge your progress. At this point in life, it’s important to use measures that identify action steps—those buy, sell and hold decisions that you will need to make to ensure that you are continuously on track to meeting your goals.

The Importance of Monitoring

To ensure good results, it’s important to catch and correct mistakes. That calls for regular monitoring that focuses on the effectiveness of each decision in achieving desired outcomes. How? By identifying problems and mistakes that you can correct midcourse.

The individual investor’s job is to stay on target so that he or she can reach his or her destination in a safe and timely manner. Risk is always a consideration for your overall portfolio and for each and every holding. Every investment must be assessed from the point of view of liquidity (can I get my money out?), potential for success (will this achieve my goals?), and potential for failure (how much can I lose?).

Let me contrast two investors.

The first reviews his monthly bottom line. Looking at whether he is ahead or behind has the advantage of being simple, but it stops short of putting things into a decision-making context. If the accounts are down, then what does he do? If the accounts are up, should he do nothing? Looking at the bottom line alone is not enough to enable him to tee up appropriate action steps.

The second judges his happiness by measuring from valleys lows to peaks highs and peaks to valleys. If his account is down from a market high, he might set a goal of recovering his “losses” as quickly as possible (a risky strategy) or holding on to ineffective investments until he gets even (an ineffective strategy). You don’t want to lose more money trying to regain your peak value or waste time in investments that are not performing.

Personal Portfolio Management

Following these steps can help you make the best investment decisions in uncertain environments.

  1. Accept that uncertainty is an element of every investment.
  2. Accept that you will make bad decisions from time to time. Instead of trying to achieve the unachievable, focus on finding and correcting mistakes. What is a mistake? An investment that does not meet expectations and an assumption that proves to be wrong.
  3. In order to set expectations, think about what you want to achieve for yourself and your family in the time that you have to devote to investing for retirement.
  4. Frame your goals in terms of consumption. How much of your savings, or capital, are you consuming for current living expenses? If you are able to limit consumption to interest and dividends, while preserving and growing capital, you are ahead of the game. Bad or volatile markets will have less affect on you.
  5. Think of your retirement assets not as individual stocks and bonds but as a portfolio that is the sum of its parts. In other words, think in terms of the big-picture. How is each element of the portfolio working to help you meet your retirement goals?
  6. Define how much risk you want to take. Do you want to assume general market risk, as measured by the S&P 500 index, or a higher or lower level of risk? The measure will help you put things in context when it comes to reviewing your portfolio.
  7. Once reasonable objectives are determined, decisions can be implemented. Then, start paying close attention to the results of your decisions.
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No System?

Without a system—or with an ineffective system such as the ones discussed above—it is all too easy to be compelled to action by outside events. In bubble markets, which you will likely see again during your lifetime, many otherwise conservative investors can be drawn into highly speculative investments. During bear markets, normally cautious investors can be spooked into pulling out of the market at the worst time, often without realizing that they are engaging in the risky practice of market timing.

Other Articles in the Retired Investor Series:

Aging’s Adverse Impact on Decision Making, July 2011

Limiting Required Minimum Distribution Costs, May 2011

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Having a goal-oriented skill set can help you cope with turbulent markets and move toward a secure retirement.

Julie Jason directs the money management practice of Jackson, Grant Investment Advisers, Inc. of Stamford, CT. She is the author of “Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad,” (Sterling, 2011).


Discussion

Samuel from SD posted over 3 years ago:

I've been retired from my career for over 17 years, but I still have a full-time job managing my portfolio. It has done well over those years, but it was managed by the one person most affected by the outcome, me.


Douglas from CA posted over 3 years ago:

The challenge in retirement for me this past year has been maintaing one's net worth ( if that is your goal) and generating enough returns to supplement and maintain your desired lifestyle. This looks like it will continue to be a real challenge over the next 5 to 10 years. With current interest rates and dividend returns,the squeeze is on. Whoever thought, that it would be this difficult for a retiree to maintain a 3 to 4% return on their overall portfolio.


T from FL posted over 3 years ago:

It has been a challenge. I have always used Financial Engines planning tool for asset allocation. (I used to pay for this service, but Vanguard offers it for free to its investors). I have a large portfolio of individual bonds (mostly munis) which generate income. And when one matures I get a nice chunk of change to either reinvest or use for expenses. I am about even in value with where I was 3-years ago, so feel lucky & think that proper asset allocation has contributed to this.


Jay from DE posted over 3 years ago:

Yes, a system is absolutely essential.....including setting appropriate stop losses on every single security owned.

I never ride a bear down.

Reading Bill O'Neil's books a few times helped me rid myself of damaging emotions.

I've been retired since 1995.


Donald from CA posted over 3 years ago:

Invested in relatively long CDs when the interest rates were 5%+ and now they are maturing. The problem now is how to maintain the portfolio without increasing the risk. Tough decisions . A laddered purchase of immediate annuities has helped balance since they are 8%+ I can tolerate lower CD rates in about 1/2 of the funds coming out of the CDs. The stock and bond portion of the
Portfolio is holding up relatively well but as others have said - watch it! Still well ahead in net worth overall over the last 4 years


Frank from NY posted over 2 years ago:

My hobby is to manage my portfolio successfully so I can withdraw 4% and increase the principal to at least cover inflation. Who else has as much interest in the results of my investments besides myself? I enjoy reading financial articles on the internet, the WSJ and magazines. I keep a certain amount set aside for fun investing and keep about 40% in bonds, 20% in money market and 30-40% in mutual funds and individual stocks I am 70 years old and tend to lean more and more towards dividend paying funds and stocks although I currently own CLF, RIO,
SLV and HME for risk assets.


Peter from OK posted over 2 years ago:

I would like AAII to focus on and
do more to help us retired folks who
manage their own accounts.

Income: being the objective with various returns and risks.

I'd like to see some income producing portfolios,
with low, medium, and reasonable higher risks.
That includes a mix of Stocks, Mutual funds, Bonds & alternative investments.

I have saved,invested, and managed my own accounts
for over thirty years.
Education has not come cheap.
AAII lifetime member.


Joseph from CA posted over 2 years ago:

The past 12 years or so have not been for the faint of heart, for sure. The latest debacle of '07-'09 has again proven to us that we should not succumb to the emotion of fear, although there were times that tested the soul, not to mention one's basic investing fortitude.

The other lesson that was learned was to stay the course. Those that did have been in turn rewarded for their patience -- in my case, a 12%-14% return since 2009 with a lineup consisting of only mutual funds.

Respectfully submitted.



Joseph from LA posted over 2 years ago:

My modus operandi for investing over the yrs (30+): save like there's no tomorrow, keep track of your monthly consumption (I have records going back to 1983), keep educating myself on financial, socio-political affairs, demographics etc (AAII member since 1987), diversification. Also not jumping into the latest "fad du jour" and not selling out at the bottom also help. I'm up 25% over where I was just before the 08-09 crash.
One last piece of advice: KISS = Keep It Simple, Stupid!


Jean from CA posted over 2 years ago:

Thanks AAII,
Life member since 80, retired since 85...still solvent and kicking...my first computer was an Apple2e and the Dow Jones software program...Baud rate 300.
Enough said.




Thomas from OH posted over 2 years ago:

Agree that AAII should set up an income portfolio with various returns and risks. Income portfolios with low, medium, and higher risks would be helpful for those of us managing our accounts. Bonds, bond funds and dividend paying stocks are of most interest.


Tony Mack from MA posted about 1 year ago:

Nice to hear comments re do your own investing. I am in the middle of that struggle. I always did my own investing, but when I retired, I figured it might be smart to let a pro handle it so I wouldn't run out of money. I gave him 80% of my money, and did the other 20% myself. After 5 years, the pro had only half the return as me (4% vs 8%, and he thought the 4% was terrific). So I figured maybe I picked the wrong pro. So I moved 50% of my money to a different very successful pro. After 6 months, I am ahead of him also. What is the story here? These guys must lie on how good they do, or I am a jinx on them. I am going to take over 100% of my money soon. I thought I was being smart by not handling all my own investing.


Harry Sargent from VA posted about 1 year ago:

I would like to see an article that addresses retirement distributions advantages and disadvantages from taxable vs tax deferred accounts.


Robert Galloway from WV posted about 1 year ago:

Giving money to "Professional Managers" erodes your capital by the asset based fees charged (1.25% to 1.5% annually, payable quarterly).
Their returns quoted are not net of fees. A 4% return may only be 2.5% or 2.75% net of fees.


James Harless from TN posted 5 months ago:

Oh for the days when CDs paid 6.5% steady, and those of us who retired did not have to feel inclined to buy a complex fixed or variable annuity with too many words written in favor of the Insurance company, or to risk with stock, bonds, or mutual funds and keep RISK on more than one had to do in the old days, which were only about 6 to 8 years ago.
What happened to banking? did all the stock advisors and mutual fund sellers bribe them, scare them or otherwise harm them? Or is this down CD market the result of dishonest brokers, real estate rip offs and mortgage dishonesty, etc. Home values down and down. Recovery from all this greed and dishonesty may take over a decade, perhaps two. jim . 6-24-2014


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