I Continue to exist Social Security and Food Stamps. Can I Protect My Investments in a Down Market?

Ask An Advisor: Graham Miller

I’m retired and living on Social Security and food stamps. I actually have all my money in two conservative retirement accounts. I cannot contribute any money to them. I plan on taking distributions in five years. What’s one of the best plan of action to avoid wasting my money before the market crashes much more?

-Camile

The core query here is protect your money during a market downturn. It’s one which I hear perhaps greater than another.

The reply can vary depending on the unique circumstances of the person asking. Particularly, it depends upon the way you understand risk and what you’re willing to do about it.

Here’s what to learn about protecting your money when the market falls. A financial advisor can make it easier to manage your savings and plan for retirement. Find a neighborhood advisor today.

The Investor’s Trilemma: Safety, Liquidity and Growth

Here's how to protect your investments when the market is down.

Here’s protect your investments when the market is down.

Generally, your investments can offer safety, growth and liquidity. But you possibly can’t expect them to deliver all three advantages directly. Because you don’t plan on taking distributions for one more five years, liquidity probably isn’t a top priority without delay. (In fact, it remains to be essential to remember.) That leaves safety and growth as your primary concerns. So, which of those two is more essential?

In your case, it’s clear that safety – or avoiding loss from further market downturns – is a serious concern. You don’t have extra money to place toward your investments, and the proven fact that they’re already so conservative suggests that you simply don’t think they’ll take much of a success.

You might or will not be right to think that. It’s difficult to say without taking a look at the hard numbers. And there could also be steps you possibly can take to make your portfolio more conservative. Then again, perhaps your dissatisfaction indicates that a safety-first approach isn’t any longer cutting it.

The Challenge: Beating Inflation

The explanation to speculate in the primary place is to maximise the worth of your money as much as possible. Many obstacles get in the way in which of that goal. However the one hurdle that can at all times be there, to some extent, is inflation.

So, as an investor, your battle is with inflation first. And the one strategy to win that battle is to own something that appreciates in value faster than (or at the very least equal to) the inflation rate.

Can You Earn Returns Without Risk?

With all those principles established, let’s return to the central query: How are you going to avoid putting your money in danger but still earn returns on it?

Well, sadly, the short answer is that you would be able to’t. No risk typically means no return.

That said, you possibly can get minimal returns, for minimal risk, by investing in debt. In other words, you loan someone money and receives a commission just a little little bit of interest in return. Some examples include:

  1. Certificates of deposit. These financial vehicles are currently paying about 3% for 12-month terms. Your money will probably be held within the CD until the maturity date or else you’ll owe a penalty.

  2. Money markets. These savings accounts are paying about 1.5% today.

  3. Treasury bonds. These government-backed bonds currently pay about 3.1% for a two-year bond.

    1. Treasury Inflation-Protected Securities (TIPS). This kind of Treasury bond has a principal value determined by the prevailing inflation rate, which impacts the interest paid.

    2. I bonds. This Treasury bond’s rate of interest is set by the present inflation rate. The present rate of interest for I bonds is at 9.62%.

These investments won’t earn you much money. But they may help soften the blow of inflation and won’t vary wildly of their value.

Such modest advantages are enough for some investors. But they will not be enough for you.

The best way to Approach Your Investments

Ask an advisor: Here's how to protect your assets in a down market

Ask an advisor: Here’s protect your assets in a down market

Sure, you don’t have the income to spare without delay, and also you won’t start drawing out of your portfolio for a number of more years, so hunkering down with low-risk assets sounds appealing.

But “starting” to attract out of your portfolio could be very different from depleting it. How long do those savings have to last? If you happen to plan on drawing out of your portfolio over the following 20 years, you should have some exposure to risk whether it is to maintain up with (or beat) inflation.

The excellent news is getting that exposure will not be as scary because it seems. If you might have a protracted time horizon and may get away with annual withdrawals of about 4% or less, you could have the opportunity to get your portfolio to a very good place with just moderate risk exposure.

A well-diversified portfolio, for instance, can have “buckets” of cash with different risk profiles for various time horizons. You would have a roughly 25% portion in your nest egg invested in money and bonds for short-term withdrawals.

A second quarter could go toward high-yield bonds and stocks and have a time horizon of six to 10 years. The ultimate half can be in essentially the most aggressive “bucket,” with stock and real estate holdings. You wouldn’t plan to attract from this bucket until 11 or more years have passed.

What to Do Next

As I at all times tell my clients, you don’t flip a switch from aggressive to conservative or vice-versa. It happens incrementally over a few years, even a long time.

And that’s true of investing generally: Whether things look exhilarating or terrifying at any given moment, keep in mind that it’s concerning the long game. Success has more to do with sticking to your principles over time, and fewer with picking the “right” horse on the “right” time.

Retirement Planning Suggestions

  • Work with knowledgeable. From Social Security and alternative income streams to medical expenses and long-term care, there’s quite a bit to think about when making a plan for retirement. A financial advisor may help guide you thru this complicated process. Finding a professional financial advisor doesn’t must be hard. SmartAsset’s free tool matches you with up to a few financial advisors who serve your area, and you possibly can interview your advisor matches for gratis to make a decision which one is true for you. If you happen to’re ready to search out an advisor who can make it easier to achieve your financial goals, start now.

  • Why you shouldn’t panic during a bear market. Pausing investments during a bear market can slash retirement income down the road. This chart shows why you shouldn’t stop investing during a bear market.

Photo credit: ©iStock.com/Goodboy Picture Company, ©iStock.com/Nattakorn Maneerat

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