Recently my husband and I went to Las Vegas to attend a training seminar for his business.
While walking through the casino to get to our room, I watched people at various gambling games. I had to wonder how much money was being lost while trying to win big, and then it hit me. This is precisely what people do with their retirement accounts in the stock market.
Right now, the stock market is at an all-time high, and with this being the 4th longest bull run in history, I see a lot of people who want to stay in the market to “win big.”
In many ways, the stock market is just like Las Vegas, and that is why I advise my clients who want to stay in the market to play like the high rollers do in Vegas. Only gamble what you can afford to lose, and quit while you’re up.
How do you know how much you can afford to lose? This is where planning comes into play. Take all your monthly expenses; not only what you need to live, but what you need to thrive – vacations, eating out, hobbies. After all, retirement is meant to be enjoyed, and you can’t enjoy it if all you are doing is barely making the bills. But you also need to factor in inflation and rising health care costs. I take those numbers and subtract out the income you receive from Social Security and pensions (if you’re receiving one) and then that gap is what we need to plan on to be there forever. That is the money you cannot afford to lose, the money that you cannot put on “25 red” or gamble on a “4 of a kind”.
Then we talk about quitting while you’re up. I advise my clients who want to still play in the market that the money you are willing to gamble on still needs to be played with wisdom. For example; if you are willing to risk $100,000.00, I advise my clients that every time your 10 – 15% up, take the winnings off the table and invest it in something safe.
With this approach to market risk, you can protect yourself from losing all your winnings when the market goes down, and you can walk out of the “casino” with only losing the money you felt was ok to lose.