I recently had a conversation with a client in her early 60s who is about to retire. As we talked about keeping a long term perspective despite recent market pressures, she noted that “Your long term and my long term are different.”
This client’s comment came from the anxiety she feels about retirement, which is perfectly understandable, especially given the tough market conditions we face today. We often hear investors say things like, “I don’t have a long time horizon. I’m retiring in a few years.” Very few people are fortunate enough to retire and then simply take their ball and go home. Almost all of us will have to invest through retirement, not just to retirement.
Consider this: For a retired couple of 65 year-olds, there is a 73% chance that at least one will make it to age 85, and a 47% chance that at least one makes it to 90, giving them an investment time horizon of 20-25 years.
If you’re 65 today, here are the probabilities of living to a specific age or beyond*:
We are much more likely to keep the long view when our portfolio strategy accurately reflects our age and risk tolerance. My client who pointed out that her long term and my long term are different is exactly right, and as a result, she has a significantly less aggressive portfolio than I have. It’s our duty as advisors to ensure that our clients’ portfolios reflect an appropriate level of risk given all of the factors in their situation.
One of my favorite financial writers is Ben Carlson (Twitter: @awealthofcs). His website, awealthofcommonsense.com, is jammed with investing truths and sound, simple advice. The following is a quote from his recent article titled, “Three Things That Don’t Matter During a Market Sell-Off.”
“There will always be a person, fund or strategy that is performing better than your portfolio. Someone else’s returns, predictions, time stamps or investment recommendations should have no bearing on how you invest unless you’re able to frame it in terms of your own unique situation and goals. Outperformance envy will not help your investment returns. Neither will someone else’s strategy if it’s not well-suited to your personality, risk profile and time horizon(s).”
*Source: JPMorgan Guide to Retirement. 2015 edition.