Volatility is not your friend
Volatility is NOT your friend!
What I know about SECURiMENT is that there comes a point in time when market volatility is no longer your friend. You may have enjoyed the thrill of market ups and downs when you were younger, but now?
SECURiMENT is peace of mind in retirement. SECURiMENT is the opposite of Imprisonment. It's happiness. It's not looking at the markets every day or obsessively refreshing the browser while reviewing your investments. It's simplicity or spending time with family. (If you like your family!)
And there are many things I know about achieving SECURiMENT.
For example, there comes a point in time when it is no longer acceptable to lose money. There comes a point in time when your (possible) maximum drawdown should be greatly reduced. Maximum Drawdown is the vertical distance from the value of your portfolio at the highest point to the value of your portfolio at the lowest.
Here's something else I know.
I know there comes a point in time when it makes sense to build a foundation or construct a floor under a portion of your assets. Simply, there comes a point in time when the value of some of your assets should not go any lower. Period.
See, it's easy when things are going well!
You know the expression – “a rising tide lifts all boats”.
All funds look good in an up market. Many advisors look good in an up market. It’s easy to buy and hold (in an up market) but there comes a point when it's prudent to take the least amount of risk to achieve a rate of return that helps you achieve SECURiMENT.
Market fluctuations are dangerous!
Between 2005 and 2012, the average rate of return of the S & P was 4.9%, but the drawdown risk was 55%. From top to bottom the S & P fell 55%. That’s too much risk. Because when markets drop sharply, the average investor is incapable of the holding part of “buy and hold” and it's the short term mistakes that ruin long term retirement plans.
What I know about SECURiMENT is that there comes a point in time when VOLATILITY, when drawdowns, when losses have a much greater impact than they used to. I know that even the best constructed plans will be rendered useless, if you don't protect your assets from volatility!
That's just the way it works!