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How Much of Your Retirement Savings Can You Afford to Lose?


Of course when most people answer this question they will usually say,

I can’t afford to lose any of it!

So, with a retirement portfolio that has exposure to the stock market in the form of individual stocks or stock mutual funds, let’s first define a loss.  The easiest way would be when you receive your next month’s statement and you see that your portfolio value has dropped from the previous month.  You may say, “Well, that is normal,” and not have a lot of concern, until the losses really start to pile up as they did in 2008, where many portfolios dropped nearly 50%.

Of course at that point most people will have a strong emotional feeling of panic and realize that at that moment they really have lost a good part of their portfolio and now they are hoping and praying that the market goes back up to recoup what they have lost.

Now the common response by the brokerage industry is “These are just paper losses and not to panic, historically the market always comes back”. Hmm, well ok there is some truth to this as when we look back in history so far, every decline has eventually worked its way back up. The big question now becomes.. “Ok how long should I expect to wait to get my money back.”

Let’s take a look at history for a moment and see how long it actually took for selloffs to recoup losses. Let’s just talk stock prices to returning to their original amount, as some will make the case that when you add in dividends or deflation that the nominal value will increase sooner.

The 1929 crash, which was the largest in US history took more than 25 years to get back to even. Wow, that’s nearly a third of one’s life today and in those days nearly half on one’s life expectancy.

The recent crash in 2008 to 2009 took nearly 5 years to recover back to their values before the decline.  That is still 5 years of waiting just to get back to even.

Other crashes such as the 1987 decline just took 15 months to recover. How about this one, it took 17 years to recover from the tech bubble crash in 2000!!

Whichever market loss we want to explore, if you asked most investors if they had a choice to go through that or not, what do you think they would all say? “Well sure I’ll play the game hope to make money in the stock market but if it goes down it may take many years of my life just to recoup my losses?”  My guess is virtually every investor would have rather avoided these losses and for many it actually became very catastrophic they sold their portfolios either because they needed the money or just lost complete faith in a market recovery.

Here’s the problem today. Most investors and especially retirees, when asked this question of how much of their portfolios they can afford dot lose or watch  go down, would still say, “No I don’t really want to play that game!”

Guess what?

Most folks ARE playing this game with their portfolios! 

There are many reasons as to why, everything from I really hadn’t thought about that to the fault of one’s broker who invested their portfolios in mostly stock investments.

With the current bull market now over 9 years in length and with the Federal Reserve now raising rates, the next recession will come sooner then later, and with it the next major stock market decline.  The question is DO YOU WANT TO GO THROUGH THIS?  If the answer is no then you need to do a portfolio checkup and look for ways to add defense.  This is where we can help!  Fill out the request for a free portfolio crash test.

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