Ok Retirees, Now May be a Good Time to Shore Up Your Floor Portfolio

This post is a brief follow-up to our post of April 23, 2018, Ok Retirees, What’s Your Plan for Dealing with the Upcoming Bear Stock Market?  In that post we said, “At some point in the future, we are going to experience another bear market.  We don’t know when it will occur, but we feel pretty safe in predicting that it will happen.”  We suggested in that post that you use our five-year projection tab to stress test your spending budget for potential poor investment returns.
 
While U.S. market indexes technically fell into bear market territory last December, we did not experience a prolonged bear market like we last did during 2007-2009.  And while we still don’t know when the next prolonged bear market will occur (or how bad it will be), we remain fairly confident that it is coming.
 
This year, we have focused mostly on helping you quantify the assets you will need to fund the different categories of your future expected expenses:

• Essential recurring expenses
• Essential non-recurring expenses
• Discretionary recurring expenses, and 
• Discretionary non-recurring expenses

In our previous post, we introduced a new tab in our ABC workbooks to help you with this process. 
 
In our post of April 10, 2019, we suggested that you consider building a floor portfolio of guaranteed low-risk investments to fund your expected essential expenses and discussed how you could go about doing this.  And while we are not investment advisors, we simply want to remind you again that prolonged bear markets can be financially damaging for retirees who have assumed too much investment risk.  Therefore, we ask you to consider at this time whether it may make sense to lessen your exposure to equity investments and use some of those assets to shore up your floor portfolio.
 
Inspiration for this post is a quote we read from financial theorist William Bernstein when he was asked “how much exposure should people have to stocks?”.  His answer was,
 
“A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.
 
Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.
 
I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?”

Takeaway
 
If the present value of your floor portfolio exceeds your actuarial budget buckets for essential expenses, you should be in reasonably good shape to weather the next prolonged bear stock market.  If it doesn’t and you have other assets invested in risky investments, you may wish to consider buying a guaranteed low-risk investment (or some other low-risk investment) to shore up your floor portfolio.  To paraphrase Dr. Bernstein, if you have already won the retirement finance game, why keep playing it?