Preserving Investments During Market Downturns - Butler Financial, LTD
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Preserving Investments During Market Downturns

Preserving Investments During Market Downturns

There have been many stories and articles regarding the prevalence of former professional athletes that go bankrupt or experience financial distress shortly after they retire. According to Pablo S. Torre’s article in Sports Illustrated )3-23-2009) How (and Why) Athletes Go Broke; Approximately 78% of former athletes experience significant financial stress within two to five years of retirement. Most of them made incredible salaries, but were they prudent in how they invested their earnings and endorsements? Where have you invested your money? Have you put it into depreciating assets such as cars and furniture, or have you focused on potentially appreciating assets such as your 401(K) with employer match or a savings fund for your children’s education?

In the world of sports, athletes that financially succeed—the Magic Johnsons, the Michael Jordans—invest a significant of their money in appreciating assets. They focus more on assets that will generate income for them and for their families. Their focus is much less on toys and depreciating assets.

Families of all sizes need to do the same. By systematically putting money into appreciating assets over many years, you will be securing your family’s future and protecting yourself from the capricious turns that life tends to take. And if your company does hand you a severance package and the prospect of retiring early, you can view it as an opportunity as opposed to a threat. With all your planning in place, it can feel more like a jumpstart into retirement rather than a kick out the door.

It takes time, however, to do this right. For young professionals, time is not an issue. With many investing years ahead, greater risks can be made, knowing that there is time to overcome losses. This is the accumulation stage of retirement planning. There may be an urge to invest more aggressively for greater gains. If the market crashes, or there is a significant pullback; there is time to wait for the rebound. You are not drawing on your savings to pay for your living expenses. You are in possession of the ultimate commodity: time.

As we know, this ultimate commodity becomes in short supply all too quickly. Yet most retirees still have many years to go. Considering today’s typical life expectancy, a couple in their early to mid-sixties can easily expect to live for twenty or thirty more years. That means that financial risk issues must be dealt with as soon as possible. In the three to five years prior to retirement, risk exposure should decrease somewhat, and as you enter retirement, reassess regularly, and take an increasingly conservative stance every several years.

At this stage of your life, the portfolio modeling needs to emphasize preservation of capital—taking less risk and tolerating less loss. In the good years, we hope that your gains will outpace your spending needs, although your portfolio likely will not perform as well as one with an aggressive stance. On the flip side, you may be better positioned against a severe loss in a down market. Positives are captured, and negative are minimized, allowing for a continual progression toward long-term goals. We can establish an estimated annual return that will meet those goals. We aim to outperform the target market return when the markets will allow it and to preserve our investments when the market experiences a downturn.
When employee compensation stops, there is understandable concern about what will replace that income. The portfolios that we design are structured to generate sufficient income for direct deposit into your checking account. If this is done properly, your income each month should be about the same.

We strive to replicate the pattern to which you are accustomed. There are ways to generate consistent cash flow each month. There are ways to create your own pension if your employer did not provide you with one. There is not as much time on your side as there once was, but there is still sufficient time to achieve what you want to accomplish. Keep in mind that it is imperative that the planning be done properly.


*Excerpt From “Financial Stability For Life”, by Daniel E. Butler, CFP®
**Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Any opinions are those of Butler Financial, LTD. and not necessarily those of RJFS or Raymond James. The
information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation

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