It’s not a matter of “if” the market will drop again… it’s a matter of “when” the market will drop again. We’re only a little over a year removed from the fastest market decline in Canadian history. From February 21, 2020 to March 20, 2020, the Toronto Stock Exchange saw more than a 33% decrease in value!
For many investors, the pains of the ‘08/’09 Financial Crisis and 2001 “Dot Com Bubble” still linger when looking at their statements. When you look at the history of the Canadian stock market, you can plainly see downturns scattered throughout. How can someone approaching retirement, or already in retirement, navigate these waters without ruining their finances for good?
Start With A Plan
Don’t go into retirement without a proper investment plan for how you’ll handle the next, inevitable bear market. Instead, be ready and know the steps you can take reduce or eliminate the strain it can put on your long-term financial prospects.
Think of the stock market as a yoyo. A yoyo being played as a person walks up the stairs. We know, given enough time, the stock market has always trended up. On any given day/week/month/year however, it can be on a downward trajectory. The key to a good investment plan is finding ways to give the yoyo time to move back up the string.
Evaluate Strategies
You can buy your portfolio time and reduce market risk for your retirement in a number of ways. Each has their own pros and cons, and every retiree has different appetites for each option. Consider:
- Working longer. Are you prepared to work an additional six months? A year? Two years? If the markets dip as you approach retirement, would you work through the downturn and wait out your assets’ recovery?
- Reducing spending. Drawing down less on assets in “bad” market years can soften the blow of market dips. If you have a good deal of control over discretionary spending, putting off that vacation can give your investments the time they need to bounce back.
- Adjusting your portfolio. Being strategic with your investment selection can insulate your income from market ebbs and flows. Consider keeping 1-3 years of retirement income in low-to-no risk holdings for drawdown in turbulent market cycles. This gives you the power to avoid selling your equity holdings at inopportune times! The downside is you can expect to earn less on these holdings in good years, given “less risk” tends to equate to “less reward.”
Implement It
Having a plan in place and knowing your options is critical. But if you never implement it, it’ll all be for naught! Commit to your action steps and you can sleep easy knowing you’re prepared to weather any storm.
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