Our topic on this episode of the Ready for Retirement podcast is thinking through the question “How soon before retirement should you start to adjust your portfolio?”
James discusses the statistical and practical standpoints on this topic to help listeners develop a comprehensive view of this question and its trickle-down effects. By the numbers, there are several things to keep in mind: the data regarding positive returns in the S&P 500, your time until retirement, and ways to diversify your portfolio to protect it from drastic swings based on the market.
It is also important to recognize that stocks and bonds complement each other and often have opposite returns trends, so when one goes down the other is likely going up.
When it comes to the practical application of these financial principles, James outlines how this might look in a real-life scenario which is worth a listen.
To answer the original question, James summarizes his thoughts by marking the 10-year mark as a milestone at which you should consider adjusting your portfolio to make it more conservative and resistant to market fluctuations.
- The statistical standpoint
- This is an investment in a real company and a good way to build up wealth over time
- Over the past 90 years, the S&P 500 has ended positively over the following timeframes:
- Daily: 53% of the time
- Monthly: 63% of the time
- Annually: 73% of the time
- Over a 5-year period: 88% of the time
- Over a 10-year period: 94% of the time
- Over a 20-year period: 100% of the time
- Depending on your time until retirement, your comfort with volatility will change, so it is important to diversify your portfolio
- International stocks
- Emerging markets
- Real estate
- James’ advice
- If you have more than 10 years until retirement, your portfolio could hypothetically be 100% stocks
- If you have fewer than 10 years until retirement, your stock returns are less consistent
- Stocks and bonds complement each other
- Provide a good diversification strategy
- People invest in them for two reasons:
- Financial – wanting to have options
- Emotional – to reduce the stress of the volatility of the market
- Practical standpoint
- James walks through a real-world example
- How soon before retirement should you start to adjust your portfolio?
- Generally, 10 years is a good time to start to transition your mindset
- Understand the end goal
- This will help you recognize the type of portfolio you want to aim towards
0:05 – How soon before retirement should you start to adjust your portfolio?
0:35 – The two standpoints of this discussion
1:03 – The statistical standpoint
5:56 – James’ typical advice to his clients based on the statistical standpoint
8:17 – Why to invest in bonds
11:23 – The practical standpoint
13:28 – Answering the initial question