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Retirees and "Pre-Retirees" Consider Protecting Your Current and Future Purchasing Power

Retirees and "Pre-Retirees" Consider Protecting Your Current and Future Purchasing Power

| May 29, 2020

Executive Summary

Protecting your purchasing power means that for the 20, 30 or even 40 years you might spend in retirement, you need some income growth. The Conventional Wisdom which might, among other things, include a low-cost stock index fund. But an index fund, by its stated goal, must remain fully invested even during downtrends. So a stock fund with more flexibility might offer some additional growth potential and additional diversification as opposed to only owning a stock index fund.

Primary Audience for this post:

  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

But Index Funds must stay fully invested and, 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

Unlike an S & P 500 Index whose charter requires being fully invested, ClearBridge Select Fund management is unconstrained so has the ability per prospectus to proactively move away from a potentially catastrophic loss trend.

Keep in mind the flexibility management has:

  1. "The fund seeks to achieve its investment objective by taking an unconstrained approach"
  2. "The fund uses a focused approach of investing in a smaller number of issuers"
  3. "The fund is classified as "non-diversified," which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund."

Source: ClearBridge Select Fund Summary Prospectus, Page 5

Bruce's Commentary:  The unconstrained approach means management does not have to stay fully invested and is allowed to move away from a potentially damaging downward trend. On the upside, management can concentrate more on their highest convictions rather than be required to own all 500~ or so names in the same proportion as an index.

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%

ClearBridge item shown above 2018 +10.49

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

  1. Social Security and / or Pension and / or annuity for predictable monthly cash flow
  2. One or more active management strategies to participate in stock market gains while potentially having smaller capital losses.
  3. 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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