On February 5th, the Dow was down 4.6%, representing a pretty large decline. However, because of our two-sided approach at Decker Retirement Planning, a strategy we use to take advantage of both up and down markets, our phones barely rang that day.

That’s because our clients’ “risk accounts” were down 0.6%, meaning we missed 85% of the market decline. Furthermore, because typically only a quarter (or less) of any individual client’s retirement portfolio is in the market in the first place, the real “hit” was something like 0.15%.




Stock Market Risk: Buy and Hold


At Decker Retirement Planning, we’ll often ask new clients what their plan is with their stocks, and they’ll say their plan is to “buy and hold” because stocks trend higher.


We want to be crystal clear that that’s not true. Stocks do not trend higher, they cycle, typically in seven to eight-year increments. For instance, in October 2007 to March 2009 there was a 50% market drop, most of it taking place in 2008. Seven years before that in 2001, the Twin Towers went down in the middle of a three-year tech-bubble bursting for another 50% drop. You can research market cycles (and corrections) back through history.


Why do stock market cycles matter? If you retire when you’re 60 to 65 years old, you’ve likely got 30 years of retirement ahead of you—so you’re likely to experience another four market drops. Are you ready for that? Do you have downside protection for that? One of the biggest reasons people get destroyed in retirement is 1) they don’t have downside protection and 2) they listen to their banker or broker telling them to buy and hold stocks.


Individual Stocks: Growth, Maturation and Decline


When it comes to market risk, buying and holding individual stocks carries another risk in addition to the risk you face with overall market cycles and corrections. ALL stock companies have three stages: a growth phase, a maturation phase, and a decline phase. Imagine that you’ve held General Electric, one of the bluest of the blue chips. Even if you’ve made all kinds of money—anywhere from 700-900% over the last 20 to 25 years—unfortunately, you’ve just given most all of it back in the last year because GE is in decline right now. It’s down 70%.


AT&T is another example. They had raised their dividends every year for 50 years in the past, but then the cell phone came along, which decimated their business model. As a result, AT&T investors have lost 70% over about a 10-year period, and they’ve never recovered it. Right now, if you own the retailers like Nordstrom’s or Macy’s or Sears, guess what? Amazon is destroying those businesses.


Once again, it’s important that you understand that buying and holding stocks faces the risk of “creative destruction” you may not want to continue that strategy anymore.




Buying and holding in retirement makes no sense on a market-cycle basis, nor does it make sense when considering that individual company stocks can be affected by new technologies and subsequent disruptions/declines.




The Math of Market Risk: Beware of Percentages


If the market goes down 50%, guess what rate of return is required to break even? Is it 50%? No, actually it’s 100%. Percentages work against you regardless of bull or bear market conditions, see the following examples, as well as the chart below.


Example 1, Bear Market Start:

Let’s take a look at how this works: If I invested $100 into XYZ and it loses 50%, my investment would now be worth $50. But luck is with me and the stock roars back by 50% (which would be $25 dollars), so now my investment is worth $75. It would take a doubling, or a 100% gain, just to break even.


Example 2, Bull Market Beginning:

Let’s look at the same investment of $100 into XYZ, but this time my shares go up by 50%, so they are now valued at $150. Then a bear market hits and I lose 50% and now my shares are worth $75. Percentages take a bigger bite out of larger amounts.



Several takeaways from the chart shown above:


  1. The higher the market loss, the more it takes to recover. For example, if you lose 5% it will take a return of 5.3% to recover. If the loss is 20%, it takes a 25% return. If you had ridden the NASDAQ down 78% in 2000 it would take almost 400% to get to breakeven!


  1. The red line in the sand for a loss should be no more than 20%. Once that line is crossed, the percentages really work against you in retirement.


  1. The table highlights the importance of risk management. You need to worry more about downside protection than upside gains. It is not what you make it is what you keep!


Markets Decline Twice as Fast as they Rise


One of the first things you will notice when you look at stock charts is how fast the market unravels. It took a little over five years for the market to reach its peak in 2000, but just 2-1/2 years to lose 78% of its value.



The Other Side of a Study They Don’t Talk About


For years Wall Street has pushed the mantra that market timing doesn’t work, and that you should always stay invested for the long term. (But they never tell you how long the long term is, a critical question when it comes to retirement!)


Perhaps you have seen charts like this showing how your returns are impacted by missing the best days in the market, in an effort to convince you not to sell, but to instead to “hold” and ride out the markets.




But let’s look at a chart that asks the opposite question: “What if I Miss the Worst Days in the market?” This chart spells out a much different scenario:





NOTE:  It is impossible to miss all the worst days, by the way. But the moral when it comes to market risk is this: market timing in general does not work.

That’s why Decker Retirement Planning has developed laddered and principal-protected retirement distribution plans for our clients. And for the 25% (or less) of the “risk money” remaining in the retirement portfolio, we have developed a two-sided strategy designed to take advantage of market risk in both bull and bear markets.

Current Market Risk


February has been a crazy month in the market. There is a contingent of investors out there that have made 300 to 500% per year for the last two years by doing something called “shorting volatility,” where you short the VIX, Volatility Index. (The Volatility Index goes up when the markets go down, it’s a contra-indicator.)


The problem with shorting volatility is that after making extraordinary amounts for two years, investors gave it all back in one day, because the fine print says that if you lose 80% or more then those investments get shut down. So people lost 100% of their funds on Monday, February 5th, when the Dow was down 4.6%. That’s a far cry from the 22% on Black Monday on October 19th, 1987, but it rang the bell as far as the end of the last 14 months of market gains.


What you’ve experienced in the last 14 months will probably never happen again in your lifetime. The reason we say this is that in over 150 years, our stock markets have never seen 14 months of uninterrupted, back-to-back monthly gains. Is the economy good? Yes. But, there are problems. These problems include the high government debt of all the G7 nations (including the U.S.), interest rates which are expected to continue to rise, real estate affordability issues because of stagnant wages, event risks, geopolitical risks and many other economic indicators that should create real concern.


Stock market risk, where we’re trading at 25 times trailing earnings, has only happened three times; in 1929, 1999, and now. Even though stock markets didn’t come back up until OVER a decade after 1929 and 1999, people are hoping that “this time is different.” Add to all of this that we are in year 10 of what typically is a seven to eight-year market cycle.


(Don’t even get us started on “bonds.” If you’re interested, read “How a Retirement Financial Planner Looks at Risk.”)


Reducing Market Risk in Retirement


The number one disaster that hurts people in retirement—in fact, takes them out of retirement and puts them in a situation where they have to go back to work—is not inflation, it’s stock market crashes.


The majority of our retirement clients’ income is coming from laddered principal-guaranteed accounts that are averaging over 6% per year right now. We are happy with those, and so are they.


For the money they may have subject to market risk (usually 25% or less of the overall portfolio, designed to be utilized in the latest years of retirement), we use two-sided models. The two-sided models we’ve developed are designed to work such that when the markets go down, they make instead of lose money. The six managers that we’re using for our clients’ risk portfolio collectively made money in 2008. They also collectively made money in 2001 and 2002, when the markets got hammered.


When to Call Decker Retirement Planning


  1. If you are being told by your advisor to “buy and hold” in this kind of a market, please call us, because we can talk to you about a plan that’s solid. We’ll go through all the details of fiduciary retirement planning with you.


  1. If your advisor uses the 4% Rule or the Rule of 100, call us immediately.


  1. If you’re 55 years or older and have at least $300,000 of investable assets, you owe it to yourself after a lifetime spent saving to make sure that you’ve got the best retirement plan possible in place. You may need less money to retire than you think. Call us and compare.


Call Decker Retirement Planning at 855-425-4566. Decker Retirement Planning has offices in Salt Lake City, Seattle and Kirkland to serve you.



Decker Retirement Planning Inc. is a registered investment advisor in the state of Washington. Our investment advisors may not transact business in states unless appropriately registered or excluded or exempted from such registration. We are registered as an investment advisor in WA, ID, UT, CA, NV and TX. We can provide investment advisory services in these states and other states where we are exempted from registration.