Even after the financial crisis of 2008 retirees continue to be victims of lies and myths of Wall Street and the financial media.
So-called gurus and experts manipulate statistics to convince you-not educate you-that if you don't invest the way they suggest you are in great danger of outliving your money. Here are two popular myths you should ignore if you want to protect your nest egg.
1 - Buy-and-hold/stay the course
The mainstream media tells you to stay invested, stay the course even when the market goes down a lot. Wall Street loves this so-called advice because if you stay invested at all times especially when markets are falling they keep generating a predictable revenue stream which keeps their shareholders happy.
In the book "investing with the trend" author Gregory Morris explains how it takes on average five years to recover from a 20% loss.
The truth is-increasing your allocation to cash and reducing your exposure to stocks during periods of uncertainty protects you against large losses and provides cash for future buying opportunities.
I always find it a little funny when the experts tell you after a market selloff that now is a great buying opportunity. But that's only the case if you have cash to invest with.
If you're retired and not adding money to your investments, maybe even withdrawing money from them you don't have cash to take advantage of these buying opportunities if you always stay fully invested.
2 - The stock market averages 10% per year if you hold tight and stay invested.
I don't need to tell you that the stock market never earns 10% year in and year out. Some years the market makers a lot of money, some years it loses a lot of money and other years it's kinda flat.
If you are retired or plan to retire in the next five years do not use average annual returns in your financial planning analysis. You really need to use different return estimates and change them each year of your remaining life expectancies.
Some years showing profits other year showing losses in order to get a good idea of how long your money will last. What good is a 10% average annual return if you end up running out of money!
Don't be afraid to increase your cash holdings during periods of increased market volatility. Just make sure you have a system to guide your decisions so you don't let your emotions take over.
And never use average annual returns when it comes to making decisions about your money and how it might affect your quality of life.