Probably the biggest risk a retirement portfolio faces is the risk of loss. The corollary risk is the risk of missed opportunity (such as a big gain), but I think I can show you the risk of loss is far worse. It all comes down to simple math.
Let’s say you are in or near retirement with a retirement portfolio worth $80,000 at the start of last year, and you experienced a 50% drop in value due to market losses. So you start this year with retirement savings worth $40,000. To get back to your original value of $80,000, how much do you need to earn in percentage terms? You might think, “A 50% loss means I just need a 50% gain to offset my loss.”
But watch and see how the math really works out, and why a loss in your retirement portfolio can be so devastating if you’re 5-10 years from retirement.