Knowledgeable investors are aware that investing in the capital markets presents any number of risks – interest-rate risk, company risk, and market risk. Risk is an inseparable companion to the potential for long-term growth. Some of the investment risks we face can be mitigated through diversification.
As an investor, you face another, less-known risk for which the market does not compensate you, nor can it be easily reduced through diversification. Yet, it may be the biggest challenge to the sustainability of your retirement income.
This risk is called the sequence-of-returns risk.
The sequence-of-returns risk refers to the uncertainty of the order of returns an investor will receive over an extended period of time. As Milton Friedman once observed, you should, “Never try to walk across a river just because it has an average depth of four feet.”
Sequence of Returns
Mr. Friedman’s point w as that averages may hide dangerous possibilities. This is especially true with the stock market. You may be comfortable that the market will deliver its historical average return over the long term, but you can never know when you will be receiving the varying positive and negative returns that comprise the average. The order in which you receive these returns can make a big difference.
For instance, a hypothetical market decline of 30% is not to be unexpected. However, would you rather experience this decline when you have relatively small retirement savings or at the moment you are ready to retire – when your savings may never be more valuable? Without a doubt, the former scenario is preferable, but the timing of that large potential decline is out of your control.
Timing, Timing, Timing
The sequence-of-returns risk is especially problematic while you are in retirement. Down years, in combination with portfolio withdrawals taken to provide retirement income, have the potential to seriously damage the ability of your savings to recover sufficiently, even as the markets fully rebound.
If you are nearing retirement or already in retirement, it’s time to give serious consideration to the “sequence-of-returns risk” and ask questions about how you can better manage your portfolio.
“I’m a greater believer in luck, and I find the harder I work the more I have of it.”
– Thomas Jefferson
Recipe of the Week
Southern Buttermilk Biscuits
- 2 cups Southern all-purpose flour (White Lily or other brand), plus more for kneading
- 1 Tbsp. baking powder
- 1 tsp. fine sea salt
- ¼ cup cold unsalted butter, cut into small pieces and chilled
- ¾ to 1 cup buttermilk
- Begin by preheating your oven to 500°F. Use a rimmed baking sheet with a nonstick, silicone baking sheet lining the pan.
- Combine the flour, baking powder, and salt in a large bowl. Cut the butter into the dry mixture using two knives or a pastry cutter. Once the contents in the bowl resemble coarse meal, pour in the buttermilk and mix until it’s just combined. You don’t want to overwork it.
- Begin by lightly kneading the dough on a sparsely floured surface. Keep turning the dough; do this about 8 times. You don’t want to knead for too long, or you’ll overwork the dough. Lightly flour a rolling pin, then roll the dough to ½-inch thick. Cut the biscuits with a 2¼-inch round cutter dipped in flour. Be sure to press the biscuit cutter straight down (avoid twisting it). This way, the biscuits will rise evenly while baking.
- Arrange the biscuits on the baking sheet and bake for 8 to 10 minutes. Look for a golden-brown color. Cool on a rack and serve the biscuits warm with plenty of butter and honey.
Recipe adapted from Southern Kitchen
Reconstructing Your Records After a Natural Disaster
Fire, hurricanes, and earthquakes – sometimes disaster strikes before we can get prepared. Making an emergency preparedness kit with food, supplies, radio, prescriptions, and important documents is your best bet before a disaster happens. Getting your records together and providing an accurate account of losses after a disaster will help with general tax purposes and will also be required for obtaining federal assistance, grants, loans, or insurance reimbursements. Here are a few tips:
- Take photos and/or video as soon as possible after the disaster.
- Contact title, escrow, or banks to get copies of needed documents. Your real estate broker may have these records as well.
- Research comparable homes in your neighborhood for value.
- Review insurance policies; they can contain a base value for replacement.
- If you made improvements to your home, contact the contractor for verification of costs.
- You can check the county assessor’s office for old records.
Reconstructing your records will help you to get re-established should your home be affected by a disaster.
Tip adapted from IRS.gov
Putt Like the Pros
Next time you’re at your local course, take a glance at the putting green, and you’ll see an infinite number of different putting styles. Even with the “pros,” you’ll see thousands of different grips, stances, and even, putters. It’s natural to wonder why anyone putts the way they do with the “flat stick.”
That’s where the basics of great putting come into play.
Beginning line control: the position of your eyes and your ability to see a straight line when you look at the intended target.
Control your speed: speed issues plague every golfer, regardless of their experience level, and improving your speed control may lead to massive improvements in your score.
Read the green: the correct read for any given putt can be variable based on a combination of start line and speed.
Master these putting elements, and your score is sure to drop.
Tip courtesy of Brandon Stooksbury, PGA | Golf Tips Magazine
You’re a Natural Beauty
Beauty products can be a source of toxic chemicals in your home you may not have thought about. Minimize the toxins with DIY, natural formulas to replace some of the products you’re using. Here are a few you can make with items you may already have:
Apple Cider Vinegar (to clarify your hair)
Use ¼ cup of organic apple cider vinegar with 1 cup of water and follow with conditioner. It will remove any build up you may have from hair products like gel or hairspray.
For a quick body scrub, mix olive oil and kosher salt (in a 2:1 oil-to-salt ratio). It will exfoliate your skin, leaving you soft and glowing.
Honey Face Mask
Just honey! Use organic, if you can. Measure about 1 Tbsp. and smooth it over your face, leaving it on for 10 minutes. Honey is naturally antimicrobial and will cleanse and soften your face.
Deep Conditioning Hair Treatment
Massage melted coconut oil into your hair and scalp, leaving the oil on for 1 to 2 hours. When you’re ready, wash out the coconut oil with shampoo and skip the conditioner.
Tips adapted from Thank Your Body
Invisible Water Waste
Food waste is often connected to water waste. That’s because producing, processing, and transporting our food requires a lot of water. Animals and crops need water to survive, so their water footprint is an important consideration when using the products they yield. Here are a few hypothetical examples to consider:
- Tossing a quart of milk = taking 6 baths
- One rotting clementine = flushing the toilet 3 times
- Wasting half a glass of orange juice = flushing the toilet 12 times
- Only ate half of that hamburger? Throwing away the other half equals a 60-minute shower. Left a bite of steak behind? That equates to running the dishwasher 22 times.
Tip adapted from Cape Chameleon