(Photo Credit: Yahoo Finance S&P 500 historical graph through today.)
As I mentioned in my previous post, the big consolation prize of this election has been its effect on the stock market. I’m not sure this is what the voters who elected this administration had in mind, enriching a young retiree who basically sits at the piano all day long. But hey, I’ll enjoy it while I can.
And that’s the point of this post. A cautionary tale to enjoy it while you can but prepare yourself for the inevitable recession. I can’t tell you when or how deep it will be, but there will be another recession. We are currently enjoying the third-longest expansionary period in U.S. history. And it’s pretty close to pulling into second place.
I retired in 2008 just before a whopper of a recession and in retrospect, I had too much of my portfolio in equities to be able to rest comfortably. At the time, I had a 70% allocation to stock mutual funds and 30% allocation to bond funds and cash. As it happens, that was enough to get me through the downturn without having to sell stock funds at bargain basement prices, but it was a little too close for comfort. After the market recovered, which took almost seven years by the way, I switched to a 60/40 allocation. So next time we ride the rollercoaster down, I won’t be quite so queasy.
Of course the market may continue marching upward for years before the inevitable downturn, but if I were retiring for the first time right now, I’d be assuming the market is more likely to go down in the not-too-distant future than to go up. And I’d have an allocation right now that would allow me peace of