You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
This is similar to the 3-fund portfolio advocated by Taylor of Boggleheads: https://www.bogleheads.org/wiki/Three-fund_portfolio
As their name implies, cash investments are easily redeemable with small, if any, penalties for withdrawal. Examples of cash investments include money market funds, bank accounts and certificates of deposit (CDs).I see the term Cash used for investments. What exactly is Cash?
I assume it is liquid savings, no risk, no return.
Savings, checking account?
Well, if you are invested in the market, and the market takes a dive, so will your investments. There is no magic.
Most people will maintain an asset allocation of enough fixed income (bonds, CDs, cash, etc), so that they don't have full exposure to the market. That limits upside as well - no magic.
As mentioned, most of us have both stocks and bonds. If stocks fall, you live off the bonds until stocks come back, which they always have. You are rewarded for risk. You need to take some risk to earn enough to overcome inflation, thus both stocks and bonds.
What is your Asset Allocation (AA) at this time? Are you comfortable with that risk level?I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
Lots of good advice here. I will mention one caution, though, that I don't think has been pointed out.
We we talk here about "index" investing, most of us are really talking about "passive" investing. This essentially involves buying a little bit of everything on the belief that, like stocks, no one can predict which sectors (or countries) will be winners in the future.
The hucksters read about the "index investing" trend, though, and are busily working to capture the naive money interested in this rubric. So, beware that "index" may not be what you want. For example, take the "South China Sea Microcap Index Fund." If you can't buy that now, it will soon be invented. This type of "index fund" is really just a trap to get the naive to move from stock-pickers to sector-pickers. Neither strategy is supported by statistical data. Even S&P 500 index funds are really sector funds -- putting their owners 100% into large cap US stocks. So, your key words have already been written here: "Total US Stock," "Total International Stock" and so on.
I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
Start by reading this page: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit
Really, that's the place to start. Educate yourself.
I agree with all of the previous replies. I will just add that boring is good. Pick your allocation comfort level, buy well diversified funds with low fees. Ignore most of the market swings. Rebalance as needed occasionally to maintain allocation. Save the 1% financial advisor fee and put that 1% back in your pocket.
You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
+1 on all the above. But don't neglect the bold portion. Verifying to yourself that this easy, low-cost approach really works and is likely much better than the results you'd get if you hire "expert" help is (IMO) key to avoid being victimized by the slew of advisors/brokers/etc who are always circling above, waiting for a chance to swoop in. They have well-practiced sales pitches and lots of glossy brochures, and your best defense is a thorough grounding in some basic principles.Really all anyone getting started needs to know (IMO) is that many, many studies find that a simple 2-4 broad based index fund portfolio ( A Total Stock Market fund, a Total Bond fund, throw in some International and/or REIT if you like, but don't get hung up on it) will probably do as well or better than the active manager you may pick. Asset allocation isn't all that sensitive - start anywhere from 40/60 to 90/10 to get started.
That's a good start, then read/study more as you go for finer points. No need to spend 1% AUM for what will likely be inferior performance.
-ERD50
This is pretty much what I have, too, with one tweak in that I have 30% Wellesley. With a fairly conservative 45:55 asset allocation, I think I can get through another severe market crash without freaking out and selling low. At least, I hope so. It's never easy.