[ram_rar]

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly.

What happens if someone's retirement coincides with a market crash? Younger investors have time on their side for recovery, but as retirement approaches, blindly following market-based strategies without carefully considering your required rate of return could be problematic. Age-appropriate risk management becomes increasingly important as your investment horizon shortens.

[317070]

Meet Bob.

Bob is the world’s worst market timer.

https://awealthofcommonsense.com/2014/02/worlds-worst-market...

[bryanlarsen]

Bob also picked the best stock market to invest in. He would have done a lot worse investing in any other stock market. It's not surprising he did well, he picked the winner.

What are the chances the US is going to have the best stock market over the next 50 years? It's possible, but doesn't seem likely.

[UncleMeat]

The bob scenario is educational, but isn't relevant here. The reason why bob is still fine is that the crashes all happen during the accumulation phase. What you don't want is a crash right as you retire, causing you to rapidly liquidate a much larger portion of your savings than expected.

[nine_zeros]

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens.

As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

[velcrovan]

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

[RivieraKid]

Even a high-yield savings account should beat inflation on average. Such account has an interest rate similar to the Fed rate which is set to be above the expected inflation in normal economic conditions when the Fed is neither supporting nor slowing the economy.

[darth_avocado]

You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s). You shouldn’t be really relying on selling assets to pay your monthly bills.

[throw0101c]

> You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s).

Just before and just after retirement it's considered a good idea to go bond heavy to help mitigate sequence of returns risk:

* https://www.kitces.com/blog/managing-portfolio-size-effect-w...

* https://www.schwab.com/learn/story/timing-matters-understand...

* https://www.td.com/content/dam/tdgis/document/ca/en/pdf/insi...

[xnx]

> While dollar cost averaging and index investing are solid strategies

Dollar cost averaging is a psychological strategy, not a financial one.

"The costly myth of dollar-cost averaging": https://web.archive.org/web/20050910142530/http://moneycentr...

"Debunking the Myth of Dollar Cost Averaging": https://news.ycombinator.com/item?id=36271061

[stvltvs]

Doesn't that assume that you're sitting on a pile of cash already and deciding how to invest it? That's not the situation for working class investors who didn't inherit a lump sum or win the lottery.

The optimal strategy for most retirement savers is "invest it as you get it" which is basically dollar cost averaging except in the rare cases when a pile of cash falls in your lap.

[exe34]

surely as retirement approaches, you should be taking money out of your investments so that you can either live off those (and traditional savings interest) or investing in safer things like real estate?