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A recent article published by Charles Schwab caught my attention. The basic premise was that the average American is now living 8,000 days, just shy of 22 years, past the age of 60 and that this presents all kinds of challenges and opportunities in our role as advisors in advocating for our clients’ future welfare.

Working with MIT’s AgeLab, this idea of 8,000 days of retirement comes from their theory that life can be broken into four 8,000 day stages; Learning, Growing, Maturing & Exploring.  Focusing on the fourth stage, the article delves into longevity issues and all kinds of related implications around health care, adult children supporting parents, parents supporting adult children, housing, mobility, etc.

What dawned on me was how effective this way of thinking is at dealing with a hurdle we often encounter; seeing retirement as the finish line. We’re often asked if we’ll need to significantly reduce exposure to stocks when a client reaches retirement or if we should follow the “100 minus your age” rule to determine what percentage of stock should be held in a portfolio.

In reality, retirement is far from the finish line. In fact, for investors it’s a beginning in a sense. A time when those 8,000, 12,000 or 16,000 remaining days will be funded by a portfolio of assets instead of by the investor’s own human capital.

Situations of course vary dramatically, but in many cases, we don’t recommend a significant change to asset allocation at the onset of retirement. Banking on those 8,000 days at a minimum, the need for growth in a portfolio in retirement necessitates healthy exposure to the market for many years.

Couldn’t the market go south, though? Of course. In fact, over a 22-year period, the stock market is certain to go up and down, likely many times over as bull and bear market cycles run their course. Think back over the last 22 years just here in the U.S. The tech boom.  The tech bust.  The housing boom. The housing bust.  A historical real estate, credit and economic crisis the likes of which hadn’t been seen since the Great Depression.  The subsequent recovery now going on ten years in the making.

I decided to do a little research to see what the net results would be of investing in various asset classes we use in client portfolios to see how many 8,000-day periods didn’t work out so well.

Without going through all the monotonous detail, I went back as far data would allow to look at returns for all available 22-year periods for the S&P 500 (large U.S. companies), Russell 2000 (small U.S. companies), MSCI ex-USA Index (large companies in developed foreign markets), MSCI Emerging Markets Index (companies in emerging nations), Dow Jones US REIT Index (U.S. based real estate), the FTSE U.S. 1-3 Year and 3-7 Year Government Bond Indices and a Balanced Strategy of 60% stock and 40% bonds based on a combination of the above indices.

So, in all those indices, how many 22-year periods produced negative results?

Index* Date Range High Return Low Return
S&P 500 1926 – 2017 17.4% 4.9%
Russell 2000 1979 – 2017 14.3% 7.4%
MSCI World ex USA 1970 – 2017 15.1% 4.1%
MSCI Emerging Markets 1988 – 2017 13.8% 4.3%
FTSE US Gov’t Bond 1-3 Years 1986 – 2017 6.2% 3.3%
FTSE US Gov’t Bond 3-7 Years 1986 – 2017 7.4% 4.7%
Dow Jones US REIT 1978 – 2017 13.6% 7.2%
Balanced Strategy (60%/40%) 1973 – 2017 16.0% 8.0%

Zip. Zero. Zilch.

Not one index listed above had a negative return over a 22-year period. In fact, the worst stock index return was 4.1% per year. Perhaps more compelling, the worst return over 22 years for a balanced 60% stock/40% bond portfolio was 8% per year.

What can we learn from this?  While it still comes down to every individual’s goals, needs and ability to tolerate the ups and downs the market is sure to bring, having an abundance of fear that a diversified, properly allocated portfolio is going to lead one astray in retirement is unfounded. In fact, when considering long term inflation rates of 3-4%, the return investors experience in exchange for the risk they take in investing in the stock market is one of the only ways to ensure keeping up with or exceeding the ever-rising costs of goods and services bound to occur throughout our post-employment years.

How we define retirement and what we do in our “exploring years” is certainly changing as technology, longevity and other societal shifts occur. How we go about constructing a resilient portfolio able to withstand all the ups and downs in the market while ensuring we have the resources needed to meet our goals has not.

*Sources and Descriptions of Index Data

  • S&P 500 Index: S&P Data ©2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
  • Russell 2000 Index: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.
  • MSCI World Ex USA Index: MSCI World ex USA Index (gross dividends) ©MSCI 2018, all rights reserved.
  • MSCI Emerging Markets: MSCI Emerging Markets Index (gross dividends) ©MSCI 2018, all rights reserved.
  • FTSE US Government Bond Index 1-3 Years & FTSE US Government Bond Index 3-7 Years: FTSE fixed income indices ©2018 FTSE Fixed Income LLC. All rights reserved.
  • 60/40 Balanced Strategy represents a sample portfolio of
    • 42% US Stocks (blend of 12% S&P 500 Index, 12% Dimensional US Large Cap Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 6% Dow Jones US Select REIT Index)
    • 18% Non-US Stocks (blend of 6% Dimensional International Marketwide Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 1.8% Dimensional Emerging Markets Index, 1.8% Dimensional Emerging Markets Value Index, 2.4% Dimensional Emerging Markets Small Cap Index)
    • 40% Fixed Income (blend of 10% each – ICE BofAML One-Year US Treasury Note Index, FTSE World Government Bond Index 1-3 Years, Bloomberg Barclays US Treasury Bond Index 1-5 Years, FTSE World Government Bond Index 1-5 Years)