The Euphoria of the 20,000 Dow

I think it’s still sinking in for some people that the Dow is at 20,000. But I’m afraid that for too many, in the euphoria of reaching that level, it’s been forgotten that it was at 6,500 not too long ago.

I can remember clearly reading all the stories of terrible financial loss after the Tech Bubble burst in 2000. There were stories of many financial advisors, even CFP’s, having to postpone their own retirement. It was almost as if it was a surprise that the stock market could go down and go down big. Do you remember the phrase ‘the new norm’ in the late 90’s? The market was supposed to go up more than its historic average every year and the NASDAQ was taking over as the main exchange and its companies the driver of our economy. That changed quickly, didn’t it?

And then starting in 2003, the markets started to recover and built up until 2008 hit and we saw it all over again, except this time in a much broader scope and causing deeper financial devastation. Again, I saw the same stories of professional advisors having to delay their own retirement or drastically adjust what they were expecting their retirement years to look like. So if that happened to their retirement plans, what about their clients’ plans? How is it a surprise that the stock market goes down and sometimes in a big way? And how can a retirement plan be so dependent on its continually rising? And what are most advisors doing differently to make sure it doesn’t happen again after the next big drop? Here’s the scary answer: Nothing.

Most advisors focus on offense only. They may put bonds in a portfolio and call it defense, but bonds are really part of the offense. We should know this because bonds can lose value (our clients know this because we have a one page model that lays it all out for them in a single view!). 

Defense wins championships. If not for the Patriots’ defense, they would not have won the Super Bowl this year (ugh, I can’t believe I just dredged up that terrible memory). And Defense wins the retirement years, along with a solid Offense. We need to work with the entire model, build in protection/contingency plans/redundancy, but do it in a way that enhances, not hampers the Offense.  Defense alone cannot win (except maybe for the ’85 Bears!)

Like a chess master, each move we make should improve both the Offense & the Defense. Your plan has to work if the Dow is at 20,000 or 6,500. But, will it work under both scenarios? Will you have the same retirement income? How do you plan to draw your retirement income? How do you plan to offset the taxes on your 401k/IRA? What have you done so far to protect your retirement income?

Let me know if you’d like to review how we move the pieces on your ‘chess board’ to ‘win the game’ of retirement. It’s what makes me jump out of bed every morning!