As we celebrate the nation’s independence it is worthwhile to see what it takes to plan your financial success and maintain your personal financial independence. 49% of 1,250 individual investors in the USA have yet to take any action to re-evaluate their portfolios, according to research released in June, 2017 by Dreyfus. With what the firm described as “the possibility of a shifting investment landscape” the global economy is more uncertain than ever. The economic environment signals include rising geopolitical uncertainty, low global interest rates, and U.S. equity markets near all-time highs. Yet, perhaps to their detriment, half of investors haven’t even begun to think about what changes may be in order for their future that includes the good, the bad, and the unforeseen.
John Bogle is the founder and retired CEO of the Vanguard Group who has taught investors to buy-and-hold no matter what. Just because the mantra is easy to follow doesn’t mean it always makes sense for every investor 100 percent of the time. First, consider Mr. Bogle is now 88 and second, recognize that his net worth is $80 million, according to therichest.com. I suspect at that age and with that net worth buy-and-hold makes good sense for the rest of his life. For the rest of us, when you don’t take the time to review what works, what didn’t work, and what might work better for you the next time the grits hit the pan leaves investors like ostriches with their head in the sand, leaving valuable body parts most vulnerable.
"Investors should monitor their portfolio in the way you go to the doctor to get an annual check-up. You wouldn't buy a car and then never get the oil checked," said Mark Santero, CEO of Dreyfus, a unit of Bank of New York Mellon Corp.
"If you're 25, a buy-and-hold strategy until you're 45 makes sense; you'll ride the various cycles. But when you're 45, you'll have different plans for your dollars than you would otherwise. You need to periodically make sure that things haven't changed in your life or in the market."
The Dreyfus study shows that for investors 55 and older, 61% have no intention of making proactive changes to their portfolios and 43% of the mass affluent haven’t evaluated their holdings at all. "You would expect the exact opposite, and why they're not looking is more of a socioeconomic question," Mark Santero said.
“Wall Street has been in a nearly uninterrupted bull market for years, ever since the 2009 bottom of the financial crisis. The equity market has largely been bereft of declines or even volatility, and the length of the expansion could have lulled investors into thinking that equities are the safest place to get gains. The CBOE Volatility index has recently hit multi-decade lows, which some view as a sign of complacency,” wrote Ryan Vlastelica at Morningstar, June 19, 2017.
"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." – Rudi Dornbush
Doug Kass at The Street on June 12, 2017 put it this way, “Always evaluate your holdings and exposure -- not on what you watch on Fox,CNBC or Bloomberg but, rather based on an assessment of reward vs risk (on stocks, sector and markets), a clear understanding of your risk appetite (and profile) and in consideration of your timeframes. Talking heads are just that, full of a lot of breathless commentary -- most usually reflected in a bullish narrative. More often than not they are trying to sell you something (a product or service). Unfortunately, with some exceptions, they are miles wide but only inches deep in their knowledge.”
As we have discussed here, early Baby Boomers (born 1946-1964) like President Donald John Trump, Bill Clinton, and George W. Bush turn 71 this year. Which means for those with any money in a traditional retirement plan the IRS requires you to start taking Required Minimum Distributions or income which is 100 percent taxable, and the rate of those withdrawals increase every year for the rest of life. The withdrawal requirement starts low at 3.65% of account value, but stick around to age 94 and you must take out 11% of your previous year’s balance. In the last 20 years you survived two times when stock markets crashed -50% or more according to id.pinterest.com. The good news is you were probably working then. If you are 53 to 71 you are either preparing to stop working soon or fully retired today. Now suppose you needed to take $60,000 a year income from a $1 million dollar account.
Hypothetical example used for illustrative purposes only and are not indicative of past or future results of any specific investment. It may or may not include consideration of the time value of money, inflation, fluctuation of principal, fees & expenses, or in many instances taxes. Actual results will vary.
This is not a recommendation. It is a simple example to show how easy it is to run out of money when taking withdrawals. On the other hand, those who took the time to add additional asset classes to the portfolio played a smarter hand so they could stay in the game called life. Instead of being lulled into complacency only to wake up in shock and awe Santero suggests, “"You need to periodically make sure that things haven't changed in your life or in the market. Given the volatility that can exist in an information age where economic outcomes change instantly, it isn't necessarily prudent to stay the course." As George Santayana is famous for, “Those who cannot remember the past are condemned to repeat it.” Wake up everybody.
The proof is in the planning.
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