Nowadays, Americans are living longer than before. For example, if you happen to retire at the age of 65 in relatively good health, you may be looking at a maximum of three decades in retirement. With a 20 to 30-year time horizon, you will require a serious shot of equities to create long-term earnings that surpass the rate of inflation easily. Because the increase may be MIA today, but it might not be the same in the future, and especially a future calculated in decades.
However, retirees also face a prospective risk of investing too much of their money in stocks. Nevertheless, when you are still young, and you are making contributions to your investment portfolio, a declining market offers you fantastic purchasing opportunities. Nonetheless, when you retire and you solely depend on your ventures to complement your social security payments or monthly pension, selling your stocks during a severe growing market can result in a relatively smaller portfolio once the market finally recovers.
When you are in a declining market, however, instead of selling your stocks at low prices, you can use your five-year-reserve to pay your expenses. If the market keeps dropping the following year and the next one, you should continue living off your dwindling reserve and abstain from selling your stocks at deteriorating market prices.
Once the market rebounds to new highs, rebalance your retirement again by selling enough equities to help you replenish your five-year reserve. This scenario is a real-world, practical solution to the famous question of how much you should have in stock. Investment U recommends you to begin early, save consistently and invest wisely because retirement rebalancing is an ideal solution for your old age retirement enigma.
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