The Real Cost of Volatility
- Mar 14, 2013
- Written by Retirement Marketing, Franklin Templeton Investments
Taking on more risk to shoot for exceptional returns can cause a retirement portfolio to run out of money too soon—especially while taking withdrawals.
We’ve got a great sales idea that demonstrates how hard it is for retirement portfolios to recover from a loss during volatile markets. It’s called The Real Cost of Volatility.
It includes the Mathematical Catch-Up Game.
Say a portfolio loses 20% of its value. What happens when an advisor is working with a retired client taking 5% annual withdrawals from that portfolio? Given a five-year time horizon, that 20% loss, along with those 5% annual withdrawals, requires a 62% cumulative gain to recover its total value.
That’s right, 62%!
What can help prevent this damaging scenario? Investments that have historically been broadly diversified, and had low relative volatility, may provide critical downside protection against declines in specific sectors or investing styles.
This sales idea helps you discuss with advisors how to handle a volatile market when clients are taking distributions.
Without an emphasis on downside protection, retirement income portfolios may run out of money too soon. And that’s the real cost of volatility.
For more information contact our Investment-Only Sales Team.
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