Well, the simple answer to that is when the long term is coming to an end in the short term.  Huh?  In other words, if your plan is to last 30 years, then when you are in year 29 (or whatever year you think makes this true), it becomes short term.  A lot of people lose sight of this when they are wanting to stick to a long term plan of investing.

How so?  From what I’ve seen, people develop a comfort level with certain rates of return on their investments, especially if it is from the stock market.  For example, if an investor is averaging around 10% annually on their investments over time, they may not be comfortable switching to a more conservative approach as they get closer to retirement.  The investor is use to riding the ups and downs of the market and feels comfortable taking some losses as the stock market has always come back to new all-time highs throughout history.

Don’t get me wrong, I’m very much a long term stock market bull myself.  I believe that almost everyone should have some type of stock market exposure.  However, it is the amount of exposure that is important to figure.

I would also like to point out the addition of target date funds.  They have become very popular over the last 10 years or so.  They are mutual funds that base your retirement on a certain age and have a grouping of funds available for what they feel is risk appropriate for that particular age.  If you absolutely hate dealing with making any type of investment decisions, that may be something for you to consider.  However, understand that those funds are very general and are not 1 size fits all.    For example, typically, the closer you get to retirement, the more bond exposure you will be given.  If you are close to retirement in 2022, and have a lot of bond exposure, you know as well as anyone, that bonds done necessarily mean total safety.

Where this leads me is to an approach where you can sleep at night, but still have some type of long term exposure.  In other words, how can you still have stock market exposure?  I personally like an asset class that I use that is not considered by most as main stream.  The asset class is hedged equity.  A simple (actually very over-simplified) way of understanding it is to use options as a way to protect against market downturns.  I like it as you have a potential guaranteed floor for a downturn.  While I like almost all major asset classes for people (and use them for clients), I really believe the most overlooked area is hedged equity. 

If you are ever interested in discussing hedged equity, feel free to reach out to me.

mtosaw@rcmfs.com