Shawn Mercer discusses market volatility and the sequence of return risks
Listen to the interview on the Business Innovators Radio Network: https://businessinnovatorsradio.com/interview-with-shawn-mercer-founder-of-mercer-financial-group-discussing-market-volatility-sequence-of-returns-risk/
Shawn Mercer, founder of Mercer Financial Group, to discuss the critical topics of market volatility and sequence of returns risk. The conversation begins with an acknowledgment of the often-avoided subject of risk in financial planning. Shawn emphasizes the inevitability of market volatility, especially for those invested in securities or bonds during retirement. He highlights the importance of understanding personal tolerance for volatility and encourages retirees to assess how much risk they can handle. The episode sets the stage for a deeper exploration into the implications of market fluctuations and how they can impact retirement planning.
In the realm of personal finance and retirement planning, two critical concepts often discussed are market volatility and sequence of returns risk. These topics are essential for anyone looking to secure their financial future, especially as they approach retirement.
Market volatility refers to the fluctuations in the prices of securities and investments over time. It is an inevitable part of investing, particularly for those who hold equities or bonds. Shawn Mercer, founder of Mercer Financial Group, emphasizes that understanding one’s personal tolerance for volatility is crucial. Each retiree must assess how much risk they are willing to accept, as this will influence their investment strategy.
Mercer points out that while market volatility can be daunting, it is essential for long-term growth. He advocates for maintaining a portion of equities in a retirement portfolio to combat inflation, especially since people are living longer in retirement—often for as long as they worked. This longevity places significant pressure on retirement savings, making it vital to have investments that can grow over time.
Sequence of returns risk is a specific type of risk that retirees face when they withdraw funds from their investment portfolios during market downturns. Mercer explains that this risk arises when individuals take withdrawals from their portfolios while the market is declining. This can lead to a detrimental cycle where the portfolio suffers from both market losses and the impact of withdrawals, potentially jeopardizing the retiree’s financial stability for years to come.
For instance, if a retiree experiences a market downturn shortly after retiring and needs to withdraw funds for living expenses, they may be forced to sell investments at a loss. This situation is akin to “buying high and selling low,” which can severely diminish the portfolio’s value and hinder recovery when the market eventually rebounds.
Strategies to Mitigate Risks
To address these risks, Mercer suggests a strategic approach to retirement planning. He recommends that retirees consider a diversified portfolio that includes both equities and fixed-income investments. This diversification helps to balance risk and ensure that retirees are not overly exposed to market fluctuations.
One effective strategy is to create a “teeter-totter” effect in the portfolio. This involves allocating funds into different asset classes that are not correlated, allowing for a more stable financial foundation. For example, retirees can utilize fixed and guaranteed income sources, such as insurance products from reputable carriers, to cover essential living expenses. This way, they can avoid liquidating investments during market downturns.
Shawn shared: “Identifying the minimum amount needed for living costs, retirees can allocate sufficient funds into guaranteed income sources, ensuring that their basic needs are met regardless of market conditions. This approach allows retirees to leave their equity investments untouched during downturns, providing them with the flexibility to weather financial storms.”
Navigating the complexities of market volatility and sequence of returns risk can be overwhelming for many individuals. Mercer emphasizes the value of working with a financial professional who can provide clarity and guidance. With years of experience, a financial advisor can help clients identify potential pitfalls and create a tailored retirement plan that aligns with their goals and risk tolerance.
In conclusion, understanding market volatility and sequence of returns risk is crucial for anyone planning for retirement. By employing strategic planning, diversifying investments, and seeking professional advice, retirees can better position themselves to achieve financial security and peace of mind in their golden years.
About Shawn Mercer
Mercer Financial Group is a full-service financial services firm committed to helping individuals, families, and business owners build confident, sustainable financial futures. Based in the Wichita Metro Area and proudly serving clients nationwide, we specialize in personalized retirement planning and long-term investment strategies designed to balance growth with safety.
