Conservative market approach urged
Louisville (Ky.) Courier-Journal
Hank Brodfehrer is counting down the months until his retirement, but because of the decline in the stock market, he wonders if he'll be able to pull it off.
"Shucks, I'm getting tired. I've been working for 50 years," said Brodfehrer, a loan officer.
His plan was to retire next August at 63 1/2, then rely on COBRA healthcare coverage for 18 months until Medicare kicks in. But the bulk of his investments have declined about 35 percent in the past 18 months, and he's not sure he'll be able to retire when he wants.
"I was counting on pulling X amount of dollars out a month to go with Social Security," he said. If his wife also retired, "we could live a decent life, but nothing extravagant. We would like to have time to travel. We would like to go to the East Coast. I'd love to see Canada, maybe Alaska. Now that's been put on hold."
Brodfehrer is among millions of Americans who have seen their hopes for a better life derailed somewhat by the downturn in the stock market.
Family counselors, psychologists and investment advisers say a key to getting back on track financially and emotionally is to devise a game plan that mixes lower expectations, emotional perspective and sound investment strategies as you alter your attitude about money and dig deeper into the meaning of life.
"In the past 18 months, some portfolios are down about 25 percent, more for those who were more aggressive," said Gene Good, a senior financial adviser with Money Concepts Financial Planning Center in Louisville, Ky.
"If you look at the past five years, the average returns have been more in line with the historical averages of about 10 percent, but if your time frame is the past 18 months, for you the sky is falling."
On the other hand, "if you were properly diversified, you probably did not lose much money at all," said Robert Cole, a certified financial planner and president of Financial Architects in Louisville. "But because of the herd mentality, a lot of people were not adequately diversified."
Long-term investors should continue to think long term, Good said.
"When you chase returns, you get into trouble," he said. "People were buying because stocks were going up. Now they're selling because stocks are going down. Try not to look at the short term.
"Now is not the time to panic. Continue to take a conservative, growth-style approach. This is a time to go back to more value-based stocks, to the General Electrics of the world."
For shorter-term goals, Cole said, such as paying for college or a house within three years, "that money should be in cash — money-market funds, certificates of deposit or savings accounts, because they won't go down. Don't be blinded by returns. You want liquidity — the ability to get to the money, without a loss."
When making financial projections for retirement, be reasonable.
Money Concepts' Good recommends using a life expectancy of 86, "which is today's life expectancy of women, who outlive men"; an annual inflation rate of 4 percent; and long-term, average investment returns in the 9-percent to 10-percent range. "If you do better, that's fine, but that's a conservative starting point."
