Finance Friday: Avoiding Retirement Portfolio Losses

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.

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About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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