As a result of the Great Recession (2007-2009), we have been living in a whole NEW Normal. That means preparing for a different kind of investment environment. Two recessions in just the last 16 years (and likely a third one on the way) have resulted in two dramatic stock market downturns. Since the year 2000, we’ve seen 50% drops in the stock market twice. For many people, broad diversification of risk-based investments was not enough to prevent huge losses in their retirement portfolios.

And think of the uncertainties in your retirement. You don’t know how long you’ll live. You don’t know what returns you’ll earn on your investments. You don’t know how your health will be. You have only a limited sum of money. And there are no second chances. Many economists believe our current situation is as bad, or worse, than the 90% market crash in 1929 and the economy that followed.

Related Article: Three Mistakes People Make In or Near Retirement 

Yet, the conventional wisdom on Wall Street still maintains that smart retirement investing is all about building a balanced portfolio of stock- and bond-based investments that will provide an adequate total return over time. Wall Street’s conventional wisdom also says that stocks are safe in the long term, and that owning significant portions of stocks is necessary in order to produce a secure retirement.

So ask yourself: What would you need to retire with confidence:

You would need a steady income that increases over time to keep pace with inflation and bridge the gap between your living expenses and your guaranteed income from Social Security and pensions.
You would need that income to continue for the rest of your life, no matter how long you live.
You would need your income to increase substantially if you suddenly needed to cover the catastrophic costs of long-term care.

How does Wall Street’s conventional investment strategy measure up? Not very well:

First of all, Wall Street’s portfolio can fluctuate dramatically in value, making someone in retirement fearful of taking withdrawals that he/she has planned. And, since no person can know how long they’ll live, that person would be very reluctant to spend down any of their principal. And, with the Wall Street portfolio, there is no trigger that increases the income or value when a long-term care need arises. So, Wall Street’s conventional investment portfolio is very poorly matched to the liability it is trying to cover.

Related Article: Three Mistakes People Make In or Near Retirement – Part II

That’s why I urge you to take the time to learn about the basics of investing. I’m not suggesting you can or should become a financial expert. But a basic understanding of investing is critical in a new normal where we’re now largely responsible for ensuring our own retirement security without the help of the government or the company you worked for so many years.

Learn and understand the investment choices that offer potential gain but also contain the risk that you could lose part or all of your principle. These kinds of investments include stocks, mutual funds, variable annuities, commodities, real estate and even certain types of bonds and bond funds.

Then learn and understand the investment choices that offer safety and guarantees, including saving accounts, money market accounts, Treasuries, CDs, fixed annuities and fixed index annuities.


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Written by: Steve Geist

Steve Geist, The Retirement Guy
Financial Strategist – Retirement Plan Specialist