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Should You Sell Your Stocks Upon Retirement?

With major stock indexes close to or at all-time highs, you may find yourself asking this question. However, if you give in, it may be the biggest financial mistake you make.

When it comes to retirement there are two conflicting risks that need to be managed: (1) volatility risk and (2) longevity risk.

(1) Volatility risk refers to how much an investment or portfolio fluctuates in value.

(2) Longevity risk refers to the possibility that you may outlive your assets.

These two risks compete because when you increase one, you indirectly decrease the other. For example, if you wanted to completely eliminate volatility risk, you would dump your stocks and go to an all-cash portfolio. However, this would greatly increase the odds that you may outlive your assets.

A common mistake retirees make is decreasing stocks too soon. It is important to remember that today retirement is a huge part of one's life. It is a period that could last fifteen or thirty years. By decreasing too much stock exposure, you erode returns and end up eating into too much principal.

You can see the most recent fifteen- and thirty-year stock market returns in the charts below. Over fifteen and thirty years the market returned 150% and 697%, respectively. Both periods included the Great Recession and the thirty year period also included the Dot Com Bubble. You can see that even in light of these downturns, the market did well. Had your assets been in cash, your opportuntiy cost would have been significant.

^SPX Chart

^SPX Chart


Bottom line – put a financial plan and investment strategy in place and don't sell too soon!

If you would like to explore the financial planning/investment management process, feel free to email me here or call me at 401-588-5122!

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