The Stock Market is Uncertain and Life Happens, so... Carve Your Financial Plan in JELL-O®, Not in Stone!


by David D. Holland




I was asked the same question by five readers last week, “Since I’m nearing retirement, should I get completely out of the stock market because of its recent drop?” As with most financial planning questions, a prudent decision will depend heavily on each person’s individual situation, assets, liabilities, income, tolerance for risk, and personal preferences. With those caveats in mind, it is certainly appropriate to “down-shift” your risk level as you approach a time when you will need to draw on your assets. Generally, it is best to start adjusting your investment mix when you are five to ten years out from your target retirement date.


Financial Plan


Market Corrections: There have now been three 10%+ corrections for the stock market since March 9th, 2009. However, technically, we are still in a “bull” market that will continue until a “bear” market (a 20% decline) shows up and crashes the party. Until the recent drop, investors, understandably, were accustomed to subdued market volatility. It is easy to forget that corrections occur frequently, with twenty-three such 10% drops since 1950. Add to that another 9 bear markets during the same period, and you’ve got 32 declines of at least 10% or more. (Source: You can do the math: 65 years divided by 32 declines means that a correction of 10% (or more) comes about every two years. As we have seen, however, these corrections don’t show up at regular, predictable intervals.


Course Corrections: If you expect to need money from your holdings, then, “yes,” you should definitely consider moving at least a portion of your funds to more stable investments. I often recommend a healthy emergency fund plus one year of expenses in cash. After that, you’ll need to determine how much of your overall nest egg should be dedicated to producing income and how much can remain in the stock market for continued growth and as an inflation hedge.


Test and Anticipate: Recently, a long-time client learned she might lose her job. Our original plan had her drawing from her investments in five years. Now we are building a contingency plan that will include shifts in her investments to provide a retirement income stream that will start sooner. A well-constructed financial plan needs to be flexible so you can adapt for unexpected trends in the market and in day-to-day life! It needs to be carved in JELL-O®, not in stone!


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