To see why this is critical, remember our two scenarios above. Some growth potential is needed in a retirement portfolio to help keep your withdrawals from draining your balance too quickly. But too much risk can result in losses that make it difficult to stick to your withdrawal strategy. Diversification can help provide some growth potential while helping prevent losses in one asset class from dominating the portfolio.
In addition, endowments also are disciplined in what they spend every year, whether markets are up or down.
Talk to your advisor
A very wise man told me that all great investors need to be a little paranoid, to always be looking for potential problems down the road. But being paranoid is not very comforting; a better mindset might be to always expect change in the markets, to develop a plan that may withstand that change, and then be wise enough to stick to that strategy.
Related: To Buy Bonds or Not to Buy Bonds
Your financial advisor can help you establish a portfolio and spending plan that is designed for your goals. Keep an eye on those numbers, but don’t forget to enjoy the fruits of your labor as you retire and begin to draw the water from the well.
This article has been republished with permission from Invesco Powershares.