How to Protect Your Nest Egg in a falling Stock Market

You need to protect your nest egg in a falling stock market especially when you are in retirement. Rule #1 is to avoid large losses in retirement. So when the financial industry actually starts to sell a product called Absolute Return Funds that might do just that we should investigate them thoroughly.

The relatively new kid on the block is the Absolute Return Fund. These funds aim to provide you with an absolute return regardless of whether the market is up or down. This meets Rule # 1 criteria of avoiding large losses to your nest egg in retirement.

As with all mutual funds actual absolute returns are likely to vary greatly but at least their primary aim is to NOT LOSE MONEY. They don’t just buy in a bull market and then hope they don’t lose it all in a bear market. They actively go long or short to protect your nest egg.

As such it is likely that in a bull market your returns will not be as good since they don’t try to beat the index. But in a bad year you should not lose as much as the index and with a good funds manager you may well make a profit.

I mentioned a dirty word two paragraphs back – short.

Yes these fund can short the market to protect your capital. Some people have a problem with that. Well it is my belief that this is just a normal part of investing or trading. It makes good sense to short the market to protect your nest egg. As long as the shorting takes place in the open market and all investors are aware of the short then it is fair and open.

Shorting has been a normal part of trading for the forex, futures and commodities markets for years. In my view it helps capital move from the weak to the strong and when we have strong companies we have a strong economy.

This great article written by Matthew Tuttle called Mutual Fund Strategies provides us with an explanation of what Absolute Return Funds are and how they work in practice.

Another thing I like about them too is they can invest in gold, real estate and commodities. Until now Mutual funds never wanted to let you put your money into gold.

What is also refreshing is the writer looks to be a financial adviser and for once we may be getting a dose of reality. He actually says ,”Many analysts, me included, are predicting that the next 10 years in the market will not be as good as the past 10 years has been.”

This is a refreshing change from the Buy and Hope mentality of buying market dips and just holding on for the long term. The only person that will benefit in the long term from your retirement nest egg using Buy and Hope is your financial advisor. If you need proof go to John Greaney’s website Retire Early HomePage. Whilst there spend a hour or so reading his great articles.

He goes on to say the Mutual Fund Manager’s game in the 90′s was to beat the market. Index Funds became popular because they bought the Index and hung on in one of the biggest bull markets in history. But it won’t always be that way. 200-2002 was a wake-up call to all retirees.

After the big gains of the 90′s Matthew says, “Then came 2000-2002, the market was creamed. Whether you were in an index fund or an actively managed fund didn’t matter, you still lost a lot of money. ” (Some say it was worse than 1973/74)

In my FREE Report What if You Retired in 2000 I show that the average (I hate using averages but I’m not using it here for retirement planning) market return for the S&P 500 from 2000 to 2007 was less than 3%. So Matthews statement above already rings true.

I found this article “Dispelling the myths surrounding absolute return funds“. It makes a good case for considering adding Absolute Return Funds to your retirement portfolio.

In retirement we have to plan for a worse case scenario to protect our nest egg against the downside and with luck the returns will take care of themselves. Absolute Return Funds are another tool we can use the do just that. Knowledge is power in retirement.

3 Responses to “How to Protect Your Nest Egg in a falling Stock Market”

  1. […] How to Protect Your Nest Egg in a falling Stock Market You need to protect your nest egg in a falling stock market especially when you are in retirement. Rule #1 is to avoid large losses in retirement. So when the financial industry actually starts to sell a product called Absolute Return Funds that might do just that we should investigate them thoroughly. The relatively new kid on the block is the Absolute Return Fund. These funds aim to provide you with an absolute return regardless of whether the market is up or down. This meets Rule # 1 criter […]

  2. […] on a whole new meaning . You realise it is your money and what the hell are they doing with it. Don’t they know you cannot afford to lose it. It starts to really get to you in the gut now. You lie awake at night knowing your gut is right […]

  3. […] in telling American Workers to get involved in their Employer 401(k)’s. He reminds us of the 2000-2002 bear market and the devastation that was visited on many about-to-retire Baby Boomers. Those Baby Boomers just […]

Leave a Reply

CommentLuv badge