Buy and Hold for Baby Boomers in Retirement maybe Gambling

If you are a retiree and use Buy and Hold strategies with your nest egg you may be gambling. If you are relying on this money to live on then you need to manage the risk. I’m talking about Baby Boomers who don’t have much surplus money and will need the bulk of their money to be their nest egg and provide them with a pension.

When you were 20 or 30 years old you could take a stock market crash in your stride because time was on your side and you were contributing to your retirement fund to accumulate your nest egg.

Now both these things are gone. You might feel and believe that 60 is the new 40 but the reality is you are out of time and out of regular income to recover from a major financial loss. You need to face this and protect your nest egg.

There is no doubt in hindsight that Buy and Hold since

the 1980’s has provided good returns over the long term until now. So you may have accumulated a sizeable nest egg if you have been investing since that time. But it is not a given. It is not an unwritten law that this be so for ever and ever. It just happened then and it may happen again – but Baby Boomers should not rely on it.

We could not have known that at the start. It was still a gambleAvoid Large Losses from 1970 to 1980 then but it may have worked out for you and that is great. If you had used Buy and Hold in the mid 1960’s you would not have seen any real returns until the stock market took off in the 1980’s. It was flat for about 16 years or so and in the 1970’s we had very high inflation. The stock market did not compensate for inflation then by the way despite what Wealth Managers tell us about the need to be in equities to fight inflation ;-(

From the chart it appears if you invested $1 in 1965 it would have taken until 1995 to get the dollar back. But most of us Baby Boomers started investing in the early 1980’s and have definitely benefited from a But and Hold strategy. Just dumb luck I think.

We are moving into a higher inflation period now and it looks like stock market prices are going nowhere for a while. At least until all this subprime and credit derivative Annual Dividends and Inflationmess is played out.

Once you become a retiree and start drawing a pension from your nest egg the whole dynamics of your nest egg change. Now it has to support you instead of you supporting it. Before when it fell due to a stock market crash you were there to pick it up and replenish it. Now if the stock market falls all you may be able to do is watch it go down and not take a pension. That sinking feeling is no fun.

For years you have supported your nest egg but it may only take one stock market crash for your nest egg not to be able to help you. Ask any of your friends who retired in 2000. Also take a look at my FREE Report What if I Retired in 2000 and play with the spreadsheet I created. To my mind you would have gambled and lost at this point. Remember the odds are stacked in favor of the House. In the long term the House will get your money if you keep gambling.

So when your financial circumstances change and you are no longer getting the income you were you have to plan how you will look after your nest egg now. You cannot just hope and pray. How will you replenish it this time if it drops 30-40% in value? Do you have an answer?

If you don’t you need to find one fast.

A sensible course of action is to have 3-5 years of your nest egg invested in safe assets like term deposits and bonds. Then you can use this money to live on if the markets are in the doldrums for an extended period. The 2000-2003 crash took until 2007 to get your nest egg back to even.

Another reason to have some money put by is to ensure you are not forced to sell your mutual fund investments at fire sale prices just to get your pension because you cannot easily insure them against such losses.

There are very few options open to Baby Boomers to insure their nest egg against large losses. I believe this is partly due to the Wealth Management Industry not wanting to actively manage our account in a defensive way or if they do they do not have a cost effective model that would allow them to make their huge profits.

Stop Losses like the FED’s interest rates hikes are crude and can hurt but you will survive to invest another day. The alternative is to put your trust in a diversified portfolio managed by the very people that have brought the market down in 2000 and again now.

Wealth Managers being proactive means being involved in protecting your nest egg perhaps daily or hourly at times. Buy and Hold is just a phone call to you over lunch or a automatic press release to tell us all to stay calm. They make their money doing just the opposite with our money, trading like crazy to make capital gains to increase the size of the funds under management, so they can get bigger commissions. It is a high risk game using your money. There is no money for them in avoiding large losses.

In fact they have no responsibility to protect you from large losses. They have a disclaimer for that which we all blindly accept.

And this is why when Baby Boomers are in retirement we have to protect our nest egg by whatever means we can to avoid large losses. We cannot assume that the stock market will turn bullish in the short term. As we retire it is the short term Baby Boomers need to worry about for the long term.

3 Responses to “Buy and Hold for Baby Boomers in Retirement maybe Gambling”

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