I’m semi-retired and manage our rental properties, but I am slowly selling them and planning to sell the last one in 2026 or 2027. Between profits from selling our rentals, our stock portfolio, and our 401(k)s and IRAs we’ll have about $3 million with a paid-off home.
We’re 85% stocks and invest moderately aggressively. Our funds and our tech stocks have done well over the years. My husband doesn’t want to retire until he’s 70, which is 14 years from now. My question is it still okay to invest this aggressively for the next 10 years?
Semi-Retired
Dear Semi-Retired,
Over the next 10 years? Stick to a five-year plan, and reassess later.
With your savings, you can afford to be “moderately aggressive” with your investments — more so than most people. Whether the outcome will be ideal is another question. You don’t need my permission to continue on this track; you are, it seems, looking for someone to wave a green flag, so your husband can “pass go” with an 85% exposure to stocks at 57.
Really, you are asking a question about risk tolerance, which appears high. And you are asking about your ability to withstand short- to medium-term fluctuations in your investments. You have rentals that provide you income and/or a shot in the arm if you sell them over the next couple of years. And, I presume, as your husband gets closer to 70, he will move more money to bonds.
At 57, the rule of thumb suggests that your husband should have roughly 43% of his investments in stocks, and the rest in bonds and other safer havens to shield him from a downturn in the market in the runup to his retirement. If you are also in your mid-50s, the same principle would apply to you. But it is (only) a recommendation.
You are, it seems, looking for someone to wave a green flag, so your husband can ‘pass go’ with an 85% exposure to stocks at 57.
There are conflicting schools of thought on saving: If you can’t afford to save money, you need to invest more aggressively to have enough income to live off in retirement. If you can afford to save money, as you have done, you don’t have to be as aggressive in your investments and take more risk. But the opposite is also true for the latter.
Your instincts have proven your right — thus far, at least. You will have experienced a good run with your portfolio over the last decade or more if you are invested in tech stocks and, in particular, the “Magnificent Seven” group of stocks — Apple AAPL, Microsoft MSFT, Nvidia NVDA, Amazon AMZN, Alphabet GOOGL, Meta META and Tesla TSLA — which makes up roughly 30% of the SPY SPY portfolio.
Your answer also depends on whether you could delay it if there were a bump in the market, as many people would have done in, say, 2022 when the S&P fell by 18%. It recovered in 2023, rising more than 26%, and again last year with a 23% increase. Pity the poor people overexposed to stocks who planned to retire in 2022, 2018 or 2008 (when the S&P 500 SPX fell 37%).
For every person who rode out the 2008 crash because they had enough time and cash, there were others who lost everything. This reader was homeless and didn’t own a car for seven years, and spent 14 years trying to dig themselves out of a financial hole. (They ended up, at your husband’s age, with $250,000 in a high-yield savings account and $150,000 in stocks.)
For every person that rode out the 2008 crash because they had enough time and cash, there were others who lost everything.
It took more than five years for the market to recover from the 2008 financial crisis, which was caused in part by predatory and subprime lending in the mortgage market and a lack of financial regulation. Diversification is also key to weather such storms: many companies survived the 1929 and 2008 financial crashes and, yes, some did not.
But let’s look at a more nightmarish scenario. After the 1929 market crash, when the stock market eventually lost roughly 90% of its value, the Dow Jones Industrial Average took more than 25 years (Nov. 23, 1954) before it closed above the level before all hell broke loose. Analysts, however, say that it actually took 5 to 10 years, accounting for the deflation.
As for another downturn: if you continue to be so heavily invested in stocks, ask yourself: what if there’s an unforeseen event? What is your financial plan for, say, a five-year period? Do you hold onto one of your rentals for income as security and/or do you continue to work, assuming that you have good job security?
Your risk model should account for all eventualities.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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