It doesn’t matter whether you are in retirement, near retirement or have several years to go. If you have been saving and investing over a long period of time you will be looking at your statements frequently; monthly, quarterly or annually. When we had so many up(positive) years in the market and most people having short-term memories, you get spoiled. No other way to say it, people get spoiled by on-going positive returns in the market. Investing over time requires a specific attitude towards how money compounds over time and works for you. If you are looking at your account daily or weekly, you are probably driving yourself a bit kooky when the market needs a flush out (i.e. a significant pullback in a short period of time).
An old saying in the markets is the following; The market takes the escalator up and the elevator down. Meaning when there is a flush out in the market, albeit over a year or two (like we are experiencing now), or possibly a deep short-term pullback like we experienced at the beginning of COVID (30% decline in six weeks), people have a tough time seeing the opportunity. Yes, an opportunity to add to high-quality positions at a lower price to compound returns over the long-term. Long-term investment banks call it “blood on the street” and they pounce quickly to put money to work in those portfolio’s. The average investor doesn’t see it that way unfortunately. There is always opportunity, especially if you have the longer-term view and the gumption to see it through.
Below are interesting results from a survey from the Council of Economic Advisers on the psychology of investors and their thoughts and approach to economic conditions. Over the years we have seen similar survey’s like this and the numbers truly don’t change much over time.
The survey cited a 2022 report from the Council of Economic Advisers
The survey found that:
- Eight in 10 Americans, or 82%, worry about a recession impacting their retirement.
- Nearly nine in 10, or 88%, believe that the generation after theirs will have a more difficult time retiring.
- Eight in 10 Americans believe that Gen Z (those born between 1997 and 2012) won’t be able to retire at age 65.
- Nearly as many (79%) think that millennials, those born between 1981 and 1996, will also be working past age 65.
- Six in 10, or 61%, believe their retirement financial plans will improve this year.
- Nearly six in 10, or 57%, think the economy will be stronger by the end of 2023.
- Only six in 10, or 59%, believe that the “American Dream” of owning a home, being debt-free and retiring comfortably is attainable for their generation.
- Fewer than half, or 48%, think that dream will be attainable for the generation that follows theirs.
70% +/- of American don’t have $400 for an emergency purchase without selling something. This number hasn’t changed since we have been discussing it for the better part of the last 10 years.
How math works in your favor investing over time.
You should not stop contributing to your Retirement Plan –
A 30-year-old with $50,000 today in their employer-sponsored retirement plan who saves $400 a month would have nearly $920,000 by age 65, assuming a conservative long-term return of 6%. Stop contributing for five years, and the pot dips more than 27% to under $667,000.
Below are some suggestions for your portfolio:
- During this 2023 year, which we consider an “investment year” where you want to review your positions and determine two(2) things:
- The growth potential over time you expect based upon your timeline.
- Your Risk Tolerance and how much you can accept based upon volatile market conditions over time.
- Assess the positions that may be too high of risk, or early-stage companies that don’t have profits and don’t have a timeline when they will be profitable and positions that are out of favor based upon their industry or business. You need to decide if you want to keep those positions, what percentage of your portfolio makes sense to keep them.
- If you are closer to retirement (or in retirement) or want to increase the stability portion of your portfolio, debt assets like Preferred Stocks are a safe and dependable investment to consider. Based upon their Call/Redeemable date, many are trading at a discount and paying more than a 5% yield.
We expect 2023 to be a volatile year, starting 2nd quarter and will most probably be in a recession by mid-year if not by end of 3rd quarter. The Fed still is working on bringing down inflation and needs a slow down in the economy to help facilitate that. This means higher unemployment and despite the many large company announcement of layoffs, it is not wide spread yet. There may be an acceleration after the first quarter which is why it is wise to keep up with your consistent contributions to your high quality positions.
Authored by
Ronald E. Lang, Principal & Chief Investment Officer
Atlas Wealth Management, LLC