Avoiding mistakes that can have lasting impacts is a big part of creating a successful retirement. With the market currently in bear market territory, should you make big changes to your investment strategy? In this video, we discuss investing tips during a recession.
You can also find answers to questions like:
Should I change my investment strategy right now?
Should I stop my 401(k) contributions?
Should I buy an annuity to help protect my retirement?
Are you investing for retirement? You're going to want to stick around because today we are sharing three investment strategies. Retirees almost always regret. Hey there, I'm Jonathan Rankin. I'm the founder and CEO of Theorem Wealth management, and I am here to show you how you can set yourself up for a successful retirement And right now. Is a very. Difficult time in the market. As of today. The market is down. Almost 24% from its high. And. It can be very concerning to be an investor, especially when you're retired or you're planning for retirement. This money that you've saved decades for has gotta last you decades longer. And seeing major losses like we're seeing right now can be hard to consider that long term viewpoint. But after working with retirees. For. Decades. I wanna share with you. Three investment strategies that I have found, retirees almost always regret when they look back. The first strategy that they tend to. Regret is investing with emotion. As I mentioned right now, the markets are down 24% from its high and depending on what investment strategy you're working with, it could be a lot worse as we see the NASDAQ or even the 30 year Treasury sell off even more than the S&P 500 right now. It is very easy. To see losses like we're seeing right now and. And feel like. The best thing to do. Is to stop the bleeding. The dangers of doing that is that it could cost you large returns in the future. Looking at this chart from Putnam shows what investing in the S&P 500 would have returned if you stayed invested from 12/31/06 to 12/31/21. That would have netted you an annualized return of 10.66%, however missing just the best 10 days, would have cut that return by more than half. Now, you might say, well, Jonathan. If I see the markets going down and all the news around us is negative. Then I can sell out and I'll just miss the worst days. Because. The best days are going to be when the markets rallying. Well, when you actually look at the data, if you look at the 10 best days during this period, they all happened during a time where. Everybody thought things were going to get a lot worse. When you look at some of these times, 5 of them were in the fall of 2008, 2 of them were just days after the bottom in March of 2009 and the others were in the middle of the pandemic near the lows of the market, in fact, March 24 was the first day of the turnaround. If you told me the headlines of what was going on during this time frame. I'd probably say that you'd want to be out of the market if you had a choice. But the reality is. Nobody can time the top and nobody can time the bottom. And the data shows. By missing. Just 10 days in the market. Your returns could be cut in half. In fact, Bank of America looked at the impact of missing the market's best days and the markets worst days. And they looked at every single decade going back to 1930. How did you just stayed invested in the S&P 500? Since 1930. You would have experienced a rate of return of 17,715%. However. If you missed. The 10 best days per decade. So just 10 days out of an entire decade. Your return. Would be 28%. Now, if you were able to time the best days and the worst days and you didn't invest in either of those. Your returns would have been better. You'd been up over 27000%, but the reality is that most people think about selling after we’ve experienced many of the worst days.
This brings us to our second investment strategy that retirees almost always regret. And that is. Halting their contributions. To their retirement account. During. Volatile markets. Now I get it if. You're just watching your account go down. And you feel like. Why am I just throwing money? That's something that keeps losing money. I'm just giving it away to the market. Well, the first thing you want to look at is. Were you contributing when the market was at an all time high? Because if you were. Market all time high is the period of most risk in the market. The markets already sold off by almost 25%. And if you're a long term investor? Or someone that has years to retirement. You actually want. The market to go through a period like this. So that you have an opportunity to put money to work while stocks are lower. There was a great article by Smart asset that showed what halting contributions during the 2001 bear market and the 2008 bear market did. In the 2001 scenario they showed an investor who halted contributions missed out on over 33K worth of gains and the 2008 investor missed out on over 56k worth of gains just because of 1 year. Right now, the Dow is a little over 29000, How nice would it be to be able to buy the dow at 13,930. Looking back, that was the all-time high of the Dow in October of 2007. The last thing you want to do, is limit your future gains because of investment decisions made when the market has already sold off.
That leads us to that retirees almost always regret. And that is. Putting a large sum of money. In a variable annuity. After the markets already sold off. I've seen this countless times. Not me saying annuities are bad, they have a purpose. Annuities are insurance for your savings. You wouldn’t buy insurance after your house burned down. Annuities are great for people who understand they have a specific purpose in a portfolio. If I am going through a tornado, I would much rather be driving a tank instead of a car, but If I am trying to get somewhere quick, the tank is the last thing I would want. What I have seen is people buy these investments because the provide safety, but eventually when the bear market turns into a bull market and there are new highs in the market, variable annuity investment performance lags. A lot of that is due to the high fees in annuities which depending on investments and riders can run average over 3%. When looking at the impact a 3% fee can have on a portfolio vs a common 1% fee, the difference over a 20 timeframe is staggering. In fact that insurance could cost you over 255k assuming you made 8% per year. I'm not saying that annuities are bad. If you're buying them. For a guaranteed income stream. Or. A enhanced death benefit. Or even a long term care rider. That could be a big benefit to your retirement portfolio. But if you are buying an annuity and you expect it to perform. In an upmarket. Like a traditional investment. That's where. We have seen retirees often regret that purchase. And the hard part about annuities? Is that? They often come with very long surrender periods, so it's not as if you can just sell it. And invest in something else typically. There's a surrender charge that you have to pay if you liquidate. In the first few years of the policy.
Nobody knows where the market is going to go from here. And it could get worse than where it is today. But if retirement is going to last you. Decades, and this is going to be a very small. In time. During a very long retirement. In the last thing you wanna do is look back at this time and realize that you made an investment decision. The impacted you for decades to come. If you're concerned about your portfolio. And. You don't know what to do during this market. And don't know really where you stand in regards to your retirement. Check out the link in the description below Where you can schedule. Your free retirement assessment so you know exactly where you stand in regards to your long term retirement goals. Our firm is here to help you. Put together. A comprehensive plan for your retirement. So that when you look back, there aren't any decisions that you made that you regret. If you found this video useful. Hit the subscribe button. We appreciate your supporting. Our channel and the content, be sure to check out Our weekly podcast called The Retire One Show.
