Pop culture wants you to know that you will be okay in the stock market as long as you stay invested for the long term. Don’t make any decisions, and don’t try to time the market. PCF doesn’t tell you that there is a time to buy and hold and a time to do something different.
Said another way, history shows that the market ultimately always goes up. Your success depends on whether or not the ups and downs of the market fit your retirement goals when you start taking money out matters.
Mutual of Omaha put out this piece called The Sequence of Returns- Timing is Everything. I think that it perfectly illustrates the point. They take someone retiring at age 65 - Jack has $1,000,000 and will start taking out $68,500 a year and increasing that amount by 2% each year for inflation.
He starts his retirement at age 65 and takes out the distributions annually. The study shows him taking the money between 1973 and 1998 vs. taking the money out between 1982-2007. Two different 25-year time periods with the same exact withdrawals. The results?
Between 1973 and 1998, he runs out of money at age 86.
Between 1982 and 2007, he has $11,124,509.00 left in his account.
The point is simply this: It isn’t always the best strategy to be 100% invested for the long term because the market goes through good and bad cycles. This is why one-size-fits-all investment approaches don’t work as advertised. It makes sense to have a strategy for the good times and the bad times.
If you want information on how to invest for the good and the bad markets, Bob would love to talk with you. Set up a time by emailing us at info@prudentmoney.com
*The above is for illustrative purposes only. It assumes that you are invested in the S&P 500 for the 25-year period illustrated with two different time periods. There is nothing built into the formula for taxes or fees. This illustration can be emailed to you by request at info@prudentmoney.com.
Check out Bob's teaching videos at youtube.com/user/prudentmoney to learn more on intentional financial stewardship.