March of 2010 I wrote; “Should We Refrain from Equity Investments” my answer was I think not. My comments were directed to those in or entering into the retirement zone, their proclivity for equity investment and maintaining a significant of asset position in The Market. At the time the DJIA had just clawed its way back to 10,550 today July 8, 2010, the DJIA has clawed its way back to 10,070 with hope for future growth, albeit slower and not 14,000 any time soon.
Bill Gross, CEO of PIMCO, one of the world’s largest bond fund managers, has said “history was made in October 2007 when the stock market fell, because we may never again in our lifetimes see a DOW of 14,000 points.” Many advisors who know or think they know have continued to point out we now live in a period of seemingly tremendous Market flux. They also tell us during the next 10 to 20 years we will see market growth followed by significant drops in market value.
Karlan Tucker, CEO of Tucker Advisor Group in an article for Producers Web.com (an industry publication) points out (6.28.2010) “When bubbles burst like the teal estate market and stock markets did in 200d, they don’t re-inflate to their previous levels for a long period of time-typically twenty years or longer.” He also goes on to mention many other bubbles yet to pop that will affect the Market as radically as those of 2007.
However, our economy today is still reeling with jobs, government debt and BP oil issues as yet to have full impact on The Market. Then there is the election issue of November 2010 as well as 2012, not to mention the various new laws passed or being passed which take effect over coming years with full impact in 2013.
As Mr. Tucker and others point out the biggest factor in getting to DJIA of 14,000 was the baby boomer generation of 77-million on a spending spree. Today there is no similar generation or one with available discretionary assets as that generation.
The question remains: Should those of us in or entering the retirement zone refrain from Equity Investments? I think not. However, development of a retirement income plan balancing guaranteed income indexed for inflation with Equity Investments and Cash Equivalents is paramount. The next several years may see Market loss equivalent to those we have witnessed. What effect will such a loss have on retired or retiring individual’s equity investment heavy and plans for retirement or quality of life in retirement? Will that individual be able to wait out the loss, have courage or time to do so?
Qualified retirement specialist’s can help developing a suitable retirement income plan with guaranteed lifetime income indexed for inflation, but based on known or historical factors. Financial Planners and Retirement Specialist recommend adjustment and rebalance of income portfolios with less dependence on risk as you move toward or into retirement but not elimination of equity type investments. Proper selection of a limited portfolio of equity investments can provide a hedge against negative changes in the economy and availability of cash equivalents to meet unexpected needs guards against having to raid assets used to generate guaranteed income or equity investments at the wrong time. Proper retirement income planning must be based on limited flexibility combining guaranteed lifetime income indexed for inflation with equity type investment and cash equivalents. Balancing these factors must be based on risk tolerance, time, and ability to withstand loss in and of investments. Primary consideration must be given to quality of life with available or known assets then improving or growing assets may be considered.
Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation, contact Hubert McMinn by email at hmcminn@plannedassets.com or for retirement planning ideas and concepts, visit him at: www.plannedassets.com.