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Neighbors of Kane County

A belated Happy New Year—2018

Mar 01, 2018 08:30AM

by John Masus

It’s still the early part of the 21st Century but a lot has happened in the last 19 years. Yes, it’s the beginning of the 19th year not the 18th year.  I had to count on my fingers to confirm that.  Thank goodness I have 5 fingers on each hand and I went through them almost twice.

In any event, remember the Y2K scare in late 1999? That was when we thought that all computer data could be lost when we rolled over to the 2000’s, because no computers had ever rolled over to a new century.  So on January 1st when we were all still here with our Bank and Investment accounts still in tack we experienced relief.

But then along comes the Technology crash.  That saw the NASDAQ go from 5,000 plus to less than 2,000 very quickly, then bouncing around and taking until 2015 to hit 5,000 again. Similar slides and rocket ships have taken place with the Dow and the S&P 500 since the turn of the century.

The S&P 500 stood at 1,469 on 12/31/1999 and on 12/31/2016 it was at 2,284.  A 52% rise. That seems to be pretty good, but if we divide that 52% by 17 years we come up with an average of about 3% per year.  

That’s why most financial planners will tell you that at retirement a draw of 3.5 to 4% annually on your retirement portfolio would be about right unless you are drawing only dividends and interest and those dividends and interest are actually paying more than that.

If 2018 is a milestone year for you and you plan to retire or are already retired, this information is especially useful.  In fact this kind of information is useful for everyone.

The moral of the story is, when an individual is going from the accumulation stage of their life (working) to the distribution stage (retirement) it’s important to re-evaluate the portfolio to make sure the new objective for income and growth is realistic. 

Because what all of this demonstrates is that these ups and downs are part of the process.  It’s not as scary if you have a long time horizon but if you are retired and drawing income from the investments, it’s a different situation entirely.     

So what caused all of this market turmoil and upheaval or was this just something unusual? I would say that this is not unusual.  There is always something going on to spook the markets. 

None of us will ever forget 9/11, but that wasn’t the only problem.  We were already in a recession when that happened.  Then along came the Great Recession.  That was a man-made crisis that was fueled by greed and ignorance on Wall Street and furthered fueled by the easy money (low interest rate environment) policy at the time as well as federal policy and banks encouraging home ownership through relaxed financial qualifications.

In other words, borrowing more money at low short term rates to buy bigger houses saddled with more debt. It’s always something. 

So once again if you are in retirement or about to retire, protect yourself and take a look at your retirement portfolio to make sure it is now designed to complement your income and realistic objectives.

John Masus is a partner in Masus Financial Group, Ltd.