The recent bear market was the fastest in the history of the S&P 500, taking only 16 days for it to fall 20%. For younger investors, this is a great opportunity to buy good stocks at low prices, while for those closer to retirement, it might seem like there is no time to recover.
In this episode, James shares a four-part framework which helps you to see if you are still on track with your retirement. Firstly, you need to know how much you are spending before you do a deep-dive into your portfolio. He shares two ways to get a handle on this: The bottom-up and top-down approaches and how they differ.
After this, James talks about knowing your income, which includes your non-portfolio resources. Not everything is affected by the turbulent stock market in the same way, so see what’s stable in your portfolio.
Then, James highlights the importance of understanding your withdrawals. He provides a formula, which uses a 4% rule of thumb to calculate your withdrawals.
The final point James touches on is the importance of diversification. Stocks and bonds fluctuate differently which is why a balanced portfolio helps you weather storms. We don’t know when this bear market will recover, so it is important to implement this four-part framework as soon as possible. Be sure to tune in today!
Key Points From This Episode:
- Bear market: What it is, how it happens and why this one is so scary.
- Why it is important to get a firm handle on spending.
- Two different approaches to calculate spending: Bottom-up vs top-down.
- Know your income and don’t forget your non-portfolio income sources.
- How to understand your investment withdrawals and calculating them.
- Different investments have different tax structures, so you need to keep this in mind.
- A properly diversified portfolio with stocks and bonds is crucial.
- A look at bear markets and their impacts on retirees throughout history.