5-Step Bear Market Game Plan for Ultra-High Net Worth Pre-Retirees
Don’t Be Caught Like Investors Who Retired in 2006
A bear market is defined as a market decline of 20% or more. Since the Great Depression in 1929 until the end of the Great Recession in 2009, ultra-high net worth investors and retirees endured 13 such bear markets. That averages to one every six years, though five of them occurred during a 17-year period leading up to and going through the Vietnam War.
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And while bear markets spread their pain to nearly everyone, how they affect you as an ultra-high net worth pre-retiree is particularly unique. The reason is because an inordinately wide chasm exists between how much you could lose and how much you ‘need’ to lose, if any. This gap is much wider for you than for most other people.
If the S&P 500 craters by 49.1%, as happened in the dotcom bust in the early 2000s, and you are over-invested in certain equities, you could lose half your wealth, or more. If you have $40 million in investments, you’re now down to $20 million.
That scale of potential loss for our ultra-high net worth friends is so far beyond what most other people can even fathom. That’s why we invest a disproportionate amount of effort in helping you avoid such unacceptable losses.
If your investments are guided by an investment plan that has been 100% customized to your short and long term retirement lifestyle dreams and other financial goals, that hypothetical person can be positioned to lose far less than $20 million. Perhaps you can even gain something, and go against the tide during a bear market.
Apple, Microsoft, Alphabet, and Amazon make up 13% of the value of the S&P 500. That’s just four out of 500 companies that occupy 13% of its value. If, during a bear market, one or more of those companies takes a big hit, everyone – including high net worth investors – who is overly dependent on that index, will lose a lot of money. It’s math.
But how would another investor fare if they avoided over-investing in what is apparently a fairly concentrated index, and instead allocated their assets more wisely?
You see, just because the ‘market’ might crater by 40% in a bear market doesn’t mean you and other pre-retiree investors have to lose the same percentage of their wealth. There is a LOT more wiggle room here than you may realize.
And not to beat up too much on the S&P, but if you owned that index in 2007, it would have taken you five years just to get back to where you were after losing 56.8% in the Great Recession. Five years, and you’ve made nothing. Imagine if you had retired in 2006.
As an ultra-high net worth investor nearing retirement, is that the situation you want to be in?How would a loss of that magnitude affect you emotionally at that point in your life? What sorts of disheartening reductions might you have to make in your deepest held retirement dreams?
Protect Your Upcoming Retirement
What You’ll Need in Your Upcoming Retirement
Your most fundamental need during retirement will be peace of mind, what we call financial serenity. If a bear market hits right before or during your retirement (which it very likely will if your retirement lasts more than ten years), this need becomes even more urgent.
The combination of three measurements helps you preserve that secure state of mind, even in a bear market:
1) Strong investment performance documented by regular reporting
2) Long term data-backed projections showing the health of your portfolio
3) Retirement income that funds your desired lifestyle
Protecting your wealth as a pre-retiree starts now, and relies most on the first two items on that list. If something goes wrong, the third item will be at risk of a contraction. If a bear market hits at the wrong time, you will have less time to recover from major losses.
That’s why for high net worth pre-retirees, strong performance looks different than for most others in the high net worth community.
Pre-Retiree Wealth Protection: Know the Right Details
When is the last time you looked at the details of your investment plan? Your plan might be out of alignment with your current goals and desires. In fact, it almost certainly is, if it’s been more than a few years since you last updated it.
Here’s what you can do now to protect your wealth in advance of the next bear market.
1. Adjust Your Plan to Reflect Your Current Retirement Goals
As just mentioned, if you haven’t updated your plan in years, it’s way out of date. If your kids are done with college, but your plan still includes money set aside to pay for it, that’s a problem.
Maybe your aging parents have come to be in need of long term care or a full-time in-home caregiver. That’s a major expense that wasn’t in your earlier plan.
Maybe one of your kids went off the deep end and you want to reduce or eliminate their share of your estate plan. Or maybe you just want to safeguard it in a trust that they don’t fully control.
The point is – things have changed. You need to update your investment plan as your life situation changes so it always reflects your anticipated lifestyle goals and needs.
2. Inventory Your Assets and Debts
Your investments represent just one part of your overall financial picture. Consider real estate, passive income sources, art and other valuables, vehicles, businesses, and other assets that represent part of your net worth.
If a bear market hits, these sorts of assets represent one outlet, if the need arises, for maintaining your long term security.
Likewise, consider your debts, if any. In a bear market, if your take-home income suffers, debts can quickly become much more burdensome than you anticipated. If the market crashes right before you retire, but you planned for it by reducing your debts, you’ll be able to breathe much easier. If not, you might have to keep working longer than you had planned.
3. Make Spending Adjustments Now – Not After the Bear Market Hits
As a pre-retiree, you are likely facing a significant drop in new income. Your retirement income will likely come mostly from your investment portfolio – item #3 on the earlier list.
Consider your expenses. Perhaps you can find a few that can be eliminated now. Those small reductions now will prolong the life and health of your portfolio after you retire. You are essentially making a small change now – one that you control – to reduce the likelihood of having to make more upsetting changes later.
In other words, you have control now to decide how to adjust your spending. So use it. Then, you won’t have to feel like your hand is being forced down the road.
If you’re thinking a bear market will come sooner rather than later, you’d be financially wise to reach out to us now. As a client of Pillar Wealth Management, we can help you navigate the effects of a bear market. To find out more, schedule a chat with CEO and co-founder Hutch Ashoo
4. List Your Core and Optional Expenses
If the previous suggestion feels hard, make a two column list of all your expenses. Put the core ones on one side, and the optional ones on the other side.
What’s great about this is, you get to decide the definitions of ‘core’ and ‘optional.’ Whatever you simply refuse to live without, that’s a core expense. Once finished, take a look at the optional expenses.
At this point, as an ultra-high net worth pre-retiree, you may not need to make any changes at all. The goal of creating this list is, if the need arises and you do need to cut expenses to weather a bear market during your retirement, you now have a ready-made list of things you can live without for a time.
5. Be Crystal Clear about Your Goals, Plans, and Dreams
Ultimately, this is the most important item on this list. Your lifestyle. How you want to live. What you want to do. Where you want to go. What you want your wealth to accomplish after you’re gone.
Everything else is driven by this – especially your investment plan. Travel plans, life experiences, bucket lists, things you want to do with your kids or grandkids, special holidays, political activism, new ventures whether business or philanthropic – what do you want to do after you retire?
You may not feel like limiting yourself to a budget in these areas, but you can still estimate what these things will cost. Taking the family on a two week trip to Southeast Asia is a fairly easy planned expense to estimate within a hundred thousand of what you’ll probably end up spending.
So, you’re not budgeting. You’re planning. There is a difference. You want to do x, y, and z, and you want to spend a certain amount on each item – without putting any of your other long term goals at risk.
Talk with your family. Consider your own dreams – the things you’ve always wanted to do. As retirement nears, you are getting close to the time when you can actually do them. You are nearing a point in life where you can live without limits or constraints on your time and your schedule.
List the things you want to do, then bring that to a wealth manager who understands the high net worth and ultra-high net worth lifestyle because they also live it themselves. Work with them to develop a plan that provides confident assurance that you can live out all these dreams – even if a bear market hits at the worst possible time.
How Pillar Wealth Management Helps Pre-Retirees Sidestep Effects of a Bear Market
Remember the first two items on the earlier list? To achieve financial serenity in retirement, even in a bear market, you need two things: Strong investment performance coupled with reliable long term projections.
Pillar Wealth Management has developed a proprietary process that can help you achieve both. To discuss our unique process for sidestepping the effects of a bear market as well as your wealth management needs, schedule a chat with CEO and co-founder Hutch Ashoo
We begin with stock market performance data from history, dating back 100 years to before the Great Depression. With that data, we are able to model how your portfolio would have performed through the various tumultuous times our country has endured – including all 13 bear markets discussed earlier.
If your portfolio makes it through those known models, and you are still projected to exceed (not meet) all your retirement goals and lifestyle dreams, you’re off to a great start. But we don’t stop there.
Based on this known historical data, we have developed 1000 ‘what-if’, hypothetical scenarios. So instead of just 100 years of data with all the booms, busts, and flat performance data that’s in the history record, we also run your portfolio through these 1000 additional scenarios.
If your portfolio exceeds (not meets) all your retirement goals in 750 to 900 of those scenarios, we consider you to be in the Comfort Zone. This means you have financial serenity, and you can relax.
When the Bear Comes
And even if a bear market crashes the party during your retirement, as it almost surely will if you plan to be retired for several decades, you can continue not worrying.
Simply call us up, ask us to rerun your portfolio given the current financial data, and find out if you’re still in the Comfort Zone. If you are, hang up and keeping living your life. If your long term projections have fallen outside the Zone, we’ll work with you to make a few adjustments to get you back within the Zone.
Bear Market Retirement Security
If you’re interested to learn more about how we can provide you financial serenity even in a bear market during your upcoming retirement, click the link below and let’s have a quick chat.
We don’t believe in high pressure sales gimmicks or anything of that sort. It will be a simple and straightforward conversation.
We’d love to help fulfill your needs and give you the retirement peace of mind you’ve worked so hard for.
Protect Your Upcoming Retirement