Looking at retirement from a wide view, we find the root concern for most individuals centered around three key questions: Do I have enough money to retire? Will I outlive my money? What happens to my money after my passing? Digging into these questions we find the answers through investments, taxes, social security, estate planning, and insurance. Answering these questions should provide individuals and families with the peace of mind needed to enjoy their life, but it’s often very easy to be sidetracked especially with what may happen in the market from time to time.
For example, let’s look back over the past month. September was a volatile month with the market pulling back a few percentage points. There were news headlines about a government shutdown, a looming debt ceiling deadline, a default of a property developer in China, and continued effects from Covid. Talking heads went wild with the volatility and questioned the stability of the economy. Furthermore, news articles were written comparing the events in China to bank defaults in 2008. In contrast, very few articles were written about this being the first 5% pull back in a year. Almost no one pointed out that these pullbacks are healthy for the market and that they allow for excesses to be removed before bubbles can form. Those data points don’t sell as many commercials but are much more important. Here are a few other things to keep in mind when the market has volatility:
- Markets average a 14% drop from a high annually, and daily dips of more than 2% occur about five times a year
- Markets drop 30% from a high about every five years
- Over the past 75 years we have seen 12 recessions, 14 bear markets, and 26 market corrections, yet the market is still setting new all-time highs
Volatility is normal, and it’s healthy. Unfortunately, that doesn’t mean it can’t be distracting when it occurs. Remember, the markets rise almost three out of every four years, but which years are ahead of time? Trying to time the market is a loser’s game and leads to buying high and selling low which destroys wealth. It’s important to turn the TV off and focus on the plan developed to answer the first three questions: Do I have enough money to retire? Will I outlive my money? What happens to my money after my passing? If you need help answering these questions, contact your financial advisor at CPS to bring these questions into focus.
Eric J Jackson