Why Systematic Distributions are Destined to FailSubmitted by Integras Partners on September 2nd, 2016
Stock market drops are never pleasant and downright unsettling for retirees. Keeping emotions in check is almost impossible when your lifetime income is dependent on finite assets. The investing media doesn’t help with inflammatory comments - designed to incite viewers and keep them glued to the TV.
Uncertainty Is Driven by Wholesale Advice
Large investment firms have one primary objective: Protect the firm. Often they position clients to assume responsibility for portfolio risk by completing an often obscure questionnaire. “If the market goes down 10%, what percentage would you sell?” Isn’t that what you’re hiring them to tell you? Many retirees have been directed to more conservative allocations then they need and are spending proportionately in Systematic Withdrawals across their portfolio.
Why Systematic Withdrawals Are Destined to Fail
If the equity markets are strong, shouldn’t we take all of this period’s income from stocks? Why would I sell a proportionate share from sectors that are down? This is backwards to dollar-cost averaging and dilutive rather than accretive. Whichever asset classes are down for the current income period, you would be selling more shares at a lower price to meet a constant cash need. This strategy will bleed your portfolio.
Ideally, all investors keep a long-term perspective that checks emotional reaction. Retirees today are more likely to live 25 years or more and need portfolio growth. Your question is: How do I achieve my investment goals, especially in today’s markets and sleep peacefully? We help clients every day with exactly this challenge.
Layer Your Assets Across Increasing Timeframes
While every retiree has a unique situation the paradigm is the same. Layer your investments across increasing timeframes and place more risk within longer horizons. We have a number of different portfolio strategies to fit each layer, including Real Assets as a complementary asset class. Keep near term needs relatively safe and turn off the TV. Don’t fret over short-term market risks when your market exposure is insulated with time. If you’d like to discuss your situation without obligation, just give us a call.