Retirement Planning For Baby Boomers Just Got Harder
ByThe first wave of Baby Boomers are just starting to enter retirement. Over the next 20 years, 76 million people will retire.
Or so they hope.
Since 2000, the US stock market has been in a Secular Bear Market. Simply defined, a Secular Bear Market occurs when successive security prices do not rise above the previous high. The majority of investors are still using strategies such as the modern portfolio theory, to diversify their portfolios.
However, this has not given them their expected historic rate of return. Since 2000, the S&P 500 index has returned an annual average of only 2.45 percent. Hardly the returns baby boomers were hoping for.
So what does this all mean? If $10,000 was invested in the S&P 500 index on 12/31/1999 at the end of 2007 it was worth $11,231.08. A historic annual average of 11 percent would have grown that $10,000 to $23,045.38. Quite a difference.
The Secular Bear Market which started in the mid 1960ss lasted almost 17 years. John Mauldin’s New York Times Business Bestseller, Bull’s Eye Investing, states .”If you invested in the S&P 500 in 1966, it was 16 years before you saw a gain, and 26 years before you had inflation-adjusted gains”.
After the greatest expanse in US economic history (1980 -2000) and back to back bubbles, there is a good chance that this Secular Bear Market will last at least another ten years – or more. 76 million Baby Boomers will either have to save more, work past 65, or find an alternate investment strategy.
One such alternative is the use of a Long/Short strategy. The Long/Short Strategy dates back to 1948 when Alfred Jones, a Harvard graduate and former U.S. diplomat, also known as the “Father of the Hedge Fund”, set forth to try to minimize risk in holding long-term stock positions by short selling other stocks, therefore “hedging” risk.
Today, this can be created by using mutual funds with an active management style. But, the ultimate goal of a Long/Short Hedging strategy is not necessarily to beat the market, but to attempt to minimize the downside risk of being in the market and produce a positive return year after year.