facebookIf I buy and hold ETF for long term till retirement, and the market happens to crash around the point I am retiring and plan to sell, does it mean that the long term gains are all gone? - Seedly
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Anonymous

Posted on 12 Dec 2020

If I buy and hold ETF for long term till retirement, and the market happens to crash around the point I am retiring and plan to sell, does it mean that the long term gains are all gone?

What can I do to avoid this situation as a long term investor?

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7 answers

Discussion (7)

BBall Uncle

BBall Uncle

Level 5. Wonderkid

Posted on 17 Dec 2020

Thanks for your great question! I have been thinking the same thing.

One strategy you can consider adopting is to create three separate "baskets" of investments - for Long, Medium and Short terms. Your LONG Term basket is kept for more than 5 years and it should be able to weather the market volatility i.e. you should not need this money till >5 years and can afford to take more risks (e.g. 100% equity). Your MEDIUM basket will consist stocks, bonds and REITS (or your standard well diversified portfolio) that has a time horizon of 1 to 5 years. It should be maintained at an amount equivalent to about four times your annual expenses. The final SHORT basket is akin to your current account, kept at roughly about one year of expenditure and placed in Money Market (Cash or short term deposits). You can rebalance your three baskets at any interval that works for you. One suggestion is to rebalance every 6 months, by transferring from Long to Medium and/or from Medium to Short, depending on your portfolios' performances.

Do let me know what you guys think? I would love to hear your thoughts!

2

Frankie Rappaport

Frankie Rappaport

17 Dec 2020

Hi, I feel that only a 6 month coverage emergency Short term and an ETF Long term parts are needed. It would be difficult to buy equity with an 1-5 years only perspective.

BBall Uncle

BBall Uncle

17 Dec 2020

Thanks! That's a good point. For Equity, preferably your time horizon is for more than 10 years. With at least 5 years, I believe you should be able to ride the volatility with the LONG basket. It is a compromise. During retirement, you should be in your drawdown phase and will probably not need an Emergency Fund (3-6 months) since your SHORT basket will fund your current expenses. The MEDIUM basket acts as a buffer with 1-5 years' horizon. It gives you some flexibility in the composition of this basket of instruments, such as stocks, ETFs, bonds and REITS, depending on overall market condition. e.g. holding on to more defensive stocks in this basket during recession. We have left out insurance protection and legacy planning. These should also be considered in a more holistic retirement planning. Hope this helps! 😊

Post

Great and relevant question, anon. Let me share what I plan to do.

What I'd do is that a few years before retirement, I'd liquidate those stocks meant for retirement and park the money in less volatile, highly liquid, high interest instruments such as fixed deposits or SSBs (or maybe even cash management accounts or insurance savings plan?).

The idea is it's ok for me to forgo those three to five years of stock market returns for peace of mind.​​​

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E

Ethanslp

Level 8. Genius

Posted on 12 Dec 2020

  1. There should be an higher allocation to bonds in your portfolio as you approach retirement, lower...

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