Markets

Don’t Let Market Volatility Wreck Your Retirement Portfolio

How much risk are you willing to take? A close look at your investments could reveal you’re risking a lot more than you think.

I’m always amazed at the number of new clients who come in not knowing how much of their portfolio is at risk.

Time and again, we’ll find that people never made the switch from the accumulation phase of their investment cycle to the preservation phase that is so important in retirement. They’re taking a lot more risk than they realize — and much more than they actually want.

So, one of the first things we’ll do is perform a risk assessment on their current holdings. They’ll tell us, “I don’t want to lose more than 5% to 10%,” but when we get the analysis back, we’ll see they’re at risk of losing 20%, 30% or even 40%.

Once they get over the shock, they’re ready to learn about volatility and what it can do to their portfolios — specifically in retirement, when they’re depending on those investments for income. That’s when market risks represent the potential loss of funds, which can have an impact on the retirement lifestyle they dreamed of for years.

Volatility isn’t as much a concern during those accumulation years. If you’re 35 and the market takes a tumble, you’ve got plenty of time — decades, in fact — to recover before you’re ready to retire. But when you’re actually in retirement, volatility definitely becomes a significant concern.

A major reason for that concern, of course, is you no longer have all those years of potential recovery time ahead of you to counteract anything that goes amiss. If the market takes a big dip, you have less chance of recovering, and that may mean you’ll need to change your spending habits and how much you’re withdrawing from your accounts to live on.

Some people might argue that volatility also involves some big gains in the market to counter those big losses. Won’t it all even out in the end?

Not necessarily.

If you have $100,000 invested and take a 30% loss one year, a 30% gain the next year won’t even get you back to square one. That 30% loss dropped you to $70,000. That 30% gain brought you to $91,000, still $9,000 below where you started.

Another factor comes into play when you’re already retired. At that point, you also may be withdrawing money from some of your accounts to handle your daily living expenses and enjoy your retirement. A big drop in a volatile market — combined with your withdrawals — makes it even more difficult to keep things steady on your financial side.

It may be time to take a real hard look at the amount of risk you have in your portfolio by having a professional do a risk analysis for you and determine whether you’re taking too much risk, being too conservative or playing it just about right.

The result could be eye opening — and it also could provide much-needed information that will help you make better investment choices going forward.

Andrew Montgomery Costa is the co-founder and managing director of Global Wealth Management (www.askglobalwealth.com). He is a co-author of The Ultimate Success Guide and the co-host on radio’s The Global Wealth Show.

Ronnie Blair contributed to this article.

About the Author

Andrew M. Costa

Managing Director and Co-Founder, Global Wealth Management

Andrew M. Costa is managing director and co-founder of Global Wealth Management in Fort Lauderdale. He is co-host of The Global Wealth Show, a financial radio show on 610 WIOD and iheartradio.com. Costa, a recognized professional in the investment management business, also has provided financial insight in "The Wall Street Journal," "USA Today" and "Newsweek," and has appeared on CBS, NBC, ABC and Fox.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
November 16, 2021
Resist the Impulse to Buy These 14 Holiday Gifts
shopping

Resist the Impulse to Buy These 14 Holiday Gifts

Don't let those holiday sale promotions persuade you into buying something now that will be much cheaper later.
November 18, 2021

Recommended

The Most-Overlooked Tax Breaks for Retirees
Tax Breaks

The Most-Overlooked Tax Breaks for Retirees

Unfortunately, seniors often miss tax-saving opportunities that are available to them. Don't let that happen to you!
December 3, 2021
How 10 Types of Retirement Income Get Taxed
retirement

How 10 Types of Retirement Income Get Taxed

When you're planning for retirement, it's fun to contemplate all the travel and rounds of golf ahead of you, but don't forget about taxes.
December 3, 2021
12 States That Tax Social Security Benefits
social security

12 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in one of these states, your Social Security benefits may be subject to state taxes.
December 2, 2021
18 States With Scary Death Taxes
inheritance

18 States With Scary Death Taxes

Federal estate taxes are no longer a problem for all but the extremely wealthy, but several states have their own estate taxes and inheritance taxes t…
December 2, 2021