If you’ve already ‘won’ the game of financial life, stop playing and start planning.
Is the investment population as a whole getting greedy? No, because it implies that they are getting greedy. Greed and the stock market in 2021 are a thing of the past.
In other words, it’s already greedy on a scale we haven’t seen since 2000 and 1929. And, when we step into the rarefied speculative air as we see now, comparisons are less important than recognition. of high risk.
If you’re young and haven’t hit your earning years maximum yet, you have an advantage over AARP-eligible guys like me. You have probably only accumulated a small fraction of what will ultimately be your retirement investment portfolio, decades later.
Magic number countdown
however, if you are 70% or more of what your “magic number” of assets is to retire, the current market environment should cause you to lean forward and consider your situation. Because now is not the time to give it back, in the name of playing with the headlines, or joining FOMO (fear of missing out).
For you, a pre-retired or retired investor, the challenge is not to turn every $ 500,000 you have into $ 1,000,000 in a few years. Instead, the first goal is pretty straightforward: don’t blow it up. While the generation behind us is pushed to make a “$ 1,000 score” on a swing trade, your portfolio swings as much during most hours of the stock market.
A dollar buys the same amount of goods and services (aka “stuff”) regardless of who owns that dollar. So, if you are fortunate enough to own a significant amount of dollars, you can afford not to swing for the close at a time when the stock market is rambunctious on a variety of valuation and sentiment gauges.
This is a time in the market cycle when an investor can easily forget who they are. Their hearts know they have done most of what they need to work and “make a living” on their terms for the rest of their lives.
But their brain thinks like a 30-year-old. They see how successful their S&P 500 index fund has been, and they may be indulging in the most dangerous investment judgment of all: they “extrapolate”. That is, they take their recent success in the market and assume that the future will be similar to the past.
Investing is usually not like that. OK, maybe the old investment mantra, ‘it’s different this time’ turns out to be correct, and we’re still getting a few more years of double-digit returns for the S&P 500 and the Nasdaq.
Fortunately, there are ways to satisfy your anxieties to keep the profit train going if the stock market continues to cooperate. This is where I think the best approach is to divide your wallet into the 3 parts that I have described here in the past.
Reintroduce the 3-coin wallet
* A core segment that invests in the vast stock market, with whatever you prefer (growth, dividend income, global, etc.).
* A HEDGE segment, which aims to remove retirement catastrophe scenarios
* A TACTICAL segment, designed to “go with the flow” in case the stock market remains more volatile than average, as has been the case for over a year
The mistake that I suspect many are making as of this writing is that the CORE segment is too dominant in their overall mix. They insist on the issue of the long-term core equity portfolio because they realize that bonds are not what they used to be.
Is there really no alternative?
Thus, they practice the so-called TINA philosophy. This argues that in an era of low interest rates, “there is no alternative” to investing in stocks. Once again, the past was pretty good. It worked. But now your retirement is on the line.
Now is the perfect time to start thinking about alternative approaches. This does not involve using bonds the old fashioned way. But that doesn’t mean you just sit in the stock market with the vast majority of your portfolio and then start planning when the going gets tough. Because bear markets happen faster than bull markets.
A $ 10,000 portfolio cut in half doesn’t change the life of an investor. This is because $ 10,000 is not a retirement nest egg. However, a $ 1,000,000 portfolio that is reduced by even 10% can start to change a person’s opinion about their own retirement. It’s a $ 100,000 swing. Think about it.
You’ve spent years getting there with your portfolio. Do everything you can to make all of that hard work and discipline worth it.