J.P. Morgan Asset Management hasjustpublisheditslatest Guide to Retirement, which includes
important reminders for advisor clients
in or near retirement and worried about
the market turbulence. They should not
cash out of stock positions during or after
big down days like the ones we’ve been
having for past month or so.
A $10,000 investment in the S&P
500 Total Return Index between Jan. 3,
2000, and Dec. 31, 2019, earning 6.06%
per year would grow to $32,421 during
those 20 years, but if 10 or 20 of the
best performing days were missed, that
gain would be less than half — roughly
$16,000 if the 10 best days were missed
and just $10,167 if 20 of them were. And
if that investor were out of the market
during the best 30 to 60 days they would
have lost money — around 2% to 7%.
Moreover, it’s not unusual for the
worst trading days to occur close to the
best trading days, so getting out of stocks
when losses are large and failing to get
back in soon after could be disastrous.
Six of the 10 best performing days in the
S&P 500 during the illustrated 20-year
stretch occurred within two weeks of
the 10 worst performing days. In 2015
the time gap was even closer. The worst
performing day was Aug. 24; the best
performing day was also Aug. 24.
More recently, on Christmas Eve 2018,
the S&P 500 lost 2.7%. Two days later, on
the first trading day after Christmas, it
gained 5%, its best single-day performance since March 2009, when the post
financial crisis bull market began.
“Sticking to an investment strategy will
benefit you,” says Katherine Roy, J.P. chief
retirement strategist at J.P. Morgan Asset
Management. “Weather the volatility.”
Roy also suggests that investors maintain
a three- to six-month buffer of emergency
funds to cushion market shortfalls.
Retirement experts from The American
College of Financial Services — Wade
Pfau, Steve Parrish and David Littell —
similarly recommend that investors draw
from their buffer asset whenever their
retirement portfolio balance falls below
its level on their first day of retirement.
The market will correct and if the current
situation is hurting their income, “now
may be a great time to make conversions
to Roth IRAs (and pay a lower tax).”
Roy says investors should consider
converting to a Roth during the early
retirement years before required mini-
mum distributions (RMDs) kick in (now
at age 72 instead of 70-½ courtesy of the
Secure Act) if those RMDs are likely to
push the retiree into a higher tax bracket.
Stock market declines can rattle retirement savers. What about when the market plunges, as it did during the week
of March 8–13, falling deep enough to
trigger circuit breakers? MagnifyMoney,
a LendingTree subsidiary, asked 740
Americans with a retirement savings
account what percentage decline they
could tolerate before abandoning stocks.
Nineteen percent of respondents
said they would tolerate no more than
a 5% market decline before giving up
on stocks for retirement, even though
slightly larger declines are becoming commonplace in today’s market,
Planning in Bull and Bear Markets
Some of the best trading days occur near the worst ones; plus, a look at what
size of a market drop it takes to spook retirement investors and other trends.
By Bernice Napach and Michael S. Fisher