I’ve been hearing this a lot lately: lots and lots of people who are close to retiring are suffering a lot of anxiety because of the recent downturn in the market. I’m no financial expert (although I play one on this blog), but even I know that if you’re even remotely close to retiring, you want to have the majority of your investments in “safe” places like bonds or even cash.
How did this happen? Isn’t this a basic tenet of asset allocation? As you get older you can’t ride out the ups and downs of the stock market as much, so you need to be in safer, more conservative investments.
As far as I can see, there are only two possible answers:
- Greed: When the stock market does well, people pile into stocks. After the bottom hit in 2002, people stayed away (as they will now) from stocks. But since the housing/market boom that has been going on ever since, more and more people have seen others getting “rich” and decided they too wanted a piece of the action.
Which, OK, I understand. But the problem now is that these very same people are shuffling their money into bonds because they feel like they’ve made a big mistake. Well, it’s too late to fix it by switching to bonds. In order to have a decent retirement, now they should stay in stocks and see what kind of bounce that money can make. That’s where the next bullet comes in.
- Stupid: Not to be harsh, but being irresponsible (or greedy) with the money you’re relying on once you don’t work anymore is not smart. Sure, I can say this now with the market crashing left and right because I’m 27 years old—I’m not directly impacted by this quite yet. But still, how did people get to this point? That’s why I think those one-stop retirement funds are so great. You buy into it and it will re- balance itself the closer you get to retirement. All automatically. Boring? Sure. Safe and sound? You bet.
The crazy part of all this is that we’ve seen it all before and will see it all again. It’s just another reason why it pays off to know your history.
If you know someone who is nearing retirement and went through this kind of thing, I’m curious to hear what you think and what you would say to them to a) help them out and b) give them “good” advice.