Investors currently in or approaching retirement are, of course, correct to be concerned whenever their investment wealth decreases. Less money is not a good thing—especially if there are binding constraints on labor income. Without the financial flexibility of a paycheck, the consequences of assuming investment risk are necessarily magnified.

Given the decline in stock values over the previous quarter, I’d like to inform you of a portfolio-survival-blueprint you may wish to consider. The nature and scope of this blueprint form the main topic of my article published in the Wealth Strategies Journal in 2008. The article “Managing Retirement Portfolio Withdrawals in Turbulent Times: Precautionary Savings, Investment Reserves and Mid-Term Adjustments” can be found in the PDF file below, or click here.

Here’s the gist of the discussion: During turbulent markets, investors place a premium on portfolio risk control measures. One immediate and obvious response to volatile market conditions is to flee to cash in order to ride out the turbulence in a safe harbor. However, systematic implementation of such a strategy means that the investor engages in a market timing activity calling for accurate forecasts of future market conditions—you have to know when to get back in the market if you elect to park your funds in cash. Here’s the problem—one wrong marketing timing call can, according to a Harvard study, wipe out, on average, the benefits [profits in a bull market + monetary conservation in a bear market] from eight previously correct market timing calls. This is a stunning level of risk to take in the name of “safety.” By contrast, my article outlines a dynamic and adaptive strategy based on using an investment reserve account to preserve and enhance long-term portfolio sustainability. It discusses the nature of the account, circumstances under which it is used, and the benefits of monitoring portfolio depletion probabilities so that small responses taken today can head off catastrophic future events.

Since the article first appeared in 2008, our firm has been actively engaged in developing an on-site portfolio sustainability monitoring system for retirement and trust accounts. If you would like additional information on how you might benefit from a portfolio simulation session, please give us a call. We can let you take the controls of the simulator, figuratively speaking, in order to experience the range of probable results flowing from your investment decisions, constraints, and preferences.