Volatility in the market is much more worrisome when you are relying on your financial assets to support your lifestyle for the rest of your life. The older you are, the more worrisome it can be.

For the time that I’ve been advising clients, the accepted rule was to manage the portfolio by diversifying asset classes based on a determined risk tolerance; then rebalance as we went along. Great concept as long as the market is going up, which it generally did from the mid 70s until 2000, with that pesky little detour in 1987, then that annoying time in 1992. Times were good for several years, while we all made money off the dotcoms until reality hit in 2000. No problem though, by 2003 we were back on track to retirement security. Then in 2008, we began experiencing the Great Recession. Not to worry. With prudent asset management, everything will be fine; and with any luck we should be back to even (vs. 2000) in another year or so. Then it will be onward and upward….probably.

But what is happening to those clients who have to draw income from their portfolio? Last week, I read about Core Capital vs. Excess Capital and the need to invest these differently in order to meet the needs of the retired clients. Core Capital is the money in the portfolio that should be dedicated to providing needed income with certainty. A combination of annuities, bonds, dividend-paying stocks, while they are not expected to grow in value at an impressive level, will provide a dependable income that will be less volatile and less effected by the whims of the market. More importantly, with proper use of annuities, you can provide income that is guaranteed to last as long as your client.

The market will go down again. It’s just a matter of when.