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If Possible, Avoid Catastrophic Loss When Retired or "Pre-retired"

If Possible, Avoid Catastrophic Loss When Retired or "Pre-retired"

| May 27, 2020

Executive Summary

Diversification sometimes might be easier said than done. If everything you owned is going up at the same time, that sounds good. But that means everything you own might ... could ... potentially .... go down at the same time. For many retirees and pre-retirees, that could be catastrophic. The Conventional Wisdom which might, among other things, include a 60% stock 40% bond portfolio has been popular. Hence "Conventional Wisdom."  Consider 60%-40% (or some other percentage) for part of your Retirement Nest Egg. There are more choices and ideas shown below.


The financial resources of a pre-retiree or one already retired might consist of, for example, Social Security, maybe a pension, possibly 401(k), IRA etc. and perhaps other investments. Probably a home which I usually don’t count as a retirement nest egg because you have to live somewhere.  The couple, as an example, might have such large resources that they are primarily investing for their grandchildren’s inheritance, but that is not the subject of this post. If the couple (or widow, etc.) needs all their resources to achieve their retirement income goal, they can not afford catastrophic loss.

Primary Audience for this post: Meet Purchasing Power Goal

  1. Within 5 years of retirement or already retired.
  2. Currently very low interest rates make it difficult or impossible to meet purchasing power goal with 100% fixed income. 
  3. Therefore you will need some growth from your retirement nest egg.
  4. Protection of your nest egg is still critical.

Stock Index Funds have recently provided good growth


Source: Vanguard

Sadly, stocks are subject to Market Loss ("Drawdown")

"More importantly though, while all the crashes prior to today have their respective bottoms marked with red, we have no clue whether we are anywhere near the bottom for the coronavirus crash."    Source: Of Dollars and Data

Investors in Potomac have participated in stock market gains while avoiding catastrophic losses

Disclosure:  As also mentioned below,

  • Past performance does not guarantee future results.
  • All investing involves risk including the possible loss of principal

Advantages & Disadvantages:

"Diversification Means Everything Is Not All Moving In the Same Direction at the Same Time"

This concept is of critical importance for retirees and pre-retirees. Many simply would be in big financial trouble if everything they owned went down all at once.


Vanguard item shown above: 2018: -4.42%

Potomac item shown above 2018: +7.21%

What to do? Diversify ... e.g.

  1. Social Security and / or Pension and / or annuity for predictable monthly cash flow
  2. Stock index fund for upside potential
  3. Active management to participate in stock market gains while potentially having smaller capital losses.
  4. Fixed Income of perhaps more than one kind to generate additional income

The views stated in this letter are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors should consider their financial ability to continue to purchase through periods of low price levels. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Exchange traded funds (ETFs) and mutual funds are sold only by prospectus. Investing in ETFs and mutual funds is subject to risk and potential loss of principal. ETFs incur trading and commission costs similar to stocks and frequent trading can negate the lower cost structure of an ETF. There is no assurance or certainty that any investment or strategy will be successful in meeting its objectives. Investors should consider the investment objectives, risks and charges, and expenses of the fund carefully before investing. The prospectus contains this and other important information about the fund. Contact your registered representative of the issuing company to obtain a prospectus, which should be read carefully before investing or sending money. The return and principal value of fixed income securities fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. All investing involves risk, including the possible loss of principal.  There is no assurance that any investment strategy will be successful. Guarantees are based on the claims paying ability of the issuer.

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