Could lightning strike the stock market twice?
Here’s a rather simple question for you to answer about your
retirement portfolio: What happens in the worst-case scenario that
the stock market takes a rather huge plunge, like it did in September 2008?
Of course, like many in the
financial planning community/press would have you believe, that’s highly
unlikely, right? But how unlikely is it?
In my defense, I did describe it as
the worst-case scenario. More likely than not, that’s not going to happen again,
but isn’t such a suggestion pure speculation on my part? The thing is, simply
hoping – or even strongly believing, as many financial experts apparently do –
that the stock market will only move in a certain direction isn’t a sensible
retirement strategy. In fact, I’d be willing to bet that prior to the 2008
market crash, many of those whose retirement dreams were completely dismantled
or seriously damaged didn’t think anything of such a magnitude could happen,
especially to their hard-earned nest eggs.
Five years have passed since the
infamous crash, and while many in the financial planning community seem to have
forgotten or moved beyond what happened, I personally think that any retirement
investor who doesn’t take a hard look at their portfolio, and simply goes with conventional
wisdom flow, is making a rather unfortunate mistake.
Please don’t take this as a caution
about not investing in the stock market, because that’s not my point here. Not to
mention that I couldn’t make such a recommendation without having had any
consultations with you. What I’m hoping to do here is encourage you to
thoroughly understand both the best and worst possible outcomes for whichever
strategy you are using. And, most important of all, make sure that your
assumptions and those of your financial advisor or the media money guru you’re
following belong in the real world and not fantasyland.
Perhaps you have heard that the
market has fully recovered and the outlook is great. But that still begs my
very simple question: What might happen to your retirement livelihood if the
market were to tank? Could it happen again? Since the nature of the stock
market is to go up AND down, of course it could.
It might be a while till we see such a severe crash again, but if lightning can
strike the same spot twice, another big market crash is always possible.
By the way, ask any of those
retirees (or those who were nearing retirement) whose portfolios took a beating
after the 2008 crash if they have recovered – as in, earned back all of the
seed money + interest that they lost – and let me know you can find anyone who has.
Here's the bottom line. Ask the hard questions before it's too late, because the price could be unbearable. Remember, it's your money and your retirement that are at stake here.
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