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URL:  http://boards.fool.com/no-if-you-are-investing-in-an-account-with-the-30873139.aspx

Subject:  Re: Hi gang... wow!!! Date:  9/16/2013  6:54 PM
Author:  aj485 Number:  72893 of 78032

No, if you are investing in an account with the S&P that you are holding untouchable for many years, you must keep an additional safe reserves account sufficient for potential catastrophic expenses (at least to the degree of potential drawdown of the market used for investment.)

But that doesn't mean you need to keep 53% of the entire account balance at all times in safe reserves. Even the worst drawdown recovered in about 5 years. Since retirement investing should be planned to potentially support you for 30 - 40 years (depending on how early you plan to retire), that means that one would only need to hold 53% of up to 5 years in reserves (or 6.6% - 8.8% of the account value for an account that is planned to last 30 - 40 years), not 53% of the total account value. To be extra safe, and account for an even longer recovery timeframe, you could probably make it 10%. That's still a whole lot less than 53%.

And for those of us who actually allocate our money to different accounts for different purposes, and hold the reserves separately from the retirement investments, 100% of the retirement investments can be put toward retirement, with no additional reserves needed.

Prior to reaching the financial point of retirement, you *DO* need every penny of both principal and gain to meet that objective.

Not if you have separate reserves that you don't count as part of your 'retirement' investments (i.e. an emergency fund).

IULs outperform the S&P500 on a buy & hold basis when compared on a risk-factored basis.

Depends on what the risk you are factoring for is. To me, investing all of my money, including my 'reserves', in the market through a single insurance company is a whole lot riskier than segregating out some reserve funds, spreading them across several FDIC guaranteed accounts, and then investing the rest of my 'retirement' funds in the market, especially given that, if everything blows up so badly that my funds in the market will never recover, the insurance company was also invested in that market, and their hedges won't pay off if the counterparties (who made the opposite bets on the same market) can't make good on them.

AJ
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