I promise I did not crash the market just to give you guys an example of a bear market for this episode! But I guess this episode is releasing at the right time. As of this recording, we are not in a bear market yet, but it looks like we’re heading there. It doesn’t really matter what kind of label we affix to this situation when the stock market goes down almost 20% we need to figure out what we are going to do about it. Listen in to hear what to do in an uncooperative market. 

It doesn’t really matter what kind of label we affix to this situation when the stock market goes down almost 20% we need to figure out what we are going to do about it. Click To Tweet

Outline of This Episode

  • [0:22] I promise I did not plan for the markets to drop to use as an example!
  • [1:50] What can we do about this uncooperative market?
  • [4:25] A hypothetical example
  • [8:34] Pension vs. lump sum
  • [12:35] How do I know when to sell and how do I know when to cut my income?

What can we do in an uncooperative market?

There are 2 things you can do in an uncooperative market. If you are feeling very aggressive and you don’t need the income for a while then it’s time to rebalance. You’ll notice that your bond funds are up and your stocks are way down. Rebalance your portfolio by feeding your losers with the gains from the winners. That way when the market makes a comeback you’ll bounce back that much quicker. 

If you are feeling very aggressive and you don’t need the income for a while then it’s time to rebalance. Click To Tweet

Perform portfolio triage

The other thing you can do, especially if you are currently living off your savings is to triage your portfolio. This means you should assess the severity of the damage to the individual parts of your portfolio. In medical terms, this means giving immediate attention to the most badly wounded. But in retirement investing you’ll do the opposite. You want to look for your least volatile holdings. 

Let’s look at an example

To find income sources in an uncooperative market in retirement you need to work your way down the risk spectrum of your portfolio. Let’s order your holdings from the most conservative to the most aggressive. To give you an example check out this hypothetical spectrum of a retirement portfolio: 

  1. Cash – money market funds, savings, and CDs
  2. Treasuries – U.S. bonds and government securities
  3. Corporate bond funds – income funds and conservative income funds 
  4. Floating rate funds
  5. High yield bond funds
  6. Preferred stock funds
  7. Real estate funds – REIT’s

If you have a 60/40 stock to bond portfolio, then these 7 levels represent the 40%. At a 4% withdrawal rate, your 40% will last roughly 10 years. I find the 60-40 retirement portfolio to be the Swiss Army Knife of retirement portfolios. It can handle a range of different situations. 

I find the 60-40 #Retirement portfolio to be the Swiss Army Knife of retirement portfolios. It can handle a range of different situations.  Click To Tweet

How do I turn these components into monthly income?

Count how many months of retirement income you have in cash, cash equivalents and beyond inside this 40%. Next, get out the super-simple retirement budget that you prepared after listening to episode 129. You’ll take that number and count how many months of retirement income you have in the first few levels. Listen in to hear a question from Mark which ties into this theme very well.

Resources & People Mentioned

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