The answer is, who knows? (CB where are you when I need you!)
Do you think that all the large name brand companies in the US will be gone, i.e., the companies that make your cell phone, cars, appliances, pharmaceuticals, cereal, clothes etc? I have been reading a lot of dystopian novels recently and if you believe those realities could come true, the answer is yes. If you are not quite that cynical or have at least slim hope for humanity to survive then your answer might be no.
Will company fortunes ebb and wane with the economy over the next 10 to 20 years? It is unlikely that any company can sustain growth 100% of the time (are you thinking large online 2-day shipping retailer?). Sometimes companies must spend a little more than they make to ensure future growth, so there can be some hiccups even for the brightest and the best. We have also watched some big-name companies’ misstep in their business planning and be bought out or taken over by another company.
You ask, why all the questions? The reason is the answers to the second two questions actually drive the answer to the first. Here’s why.
I met with a gentleman about his retirement in the dot bomb era. I was explaining to him that the only way he was going to be able to keep up with the rising cost of living during retirement was to invest in the stock market (yes this is an entire blog post on its own which I will have to share with you later). He was very concerned with losing money during retirement, so I discussed with him the brand names of the companies I was referring to. His comment was “aren’t these companies not doing very well?”. Bingo! My answer to him was “yes” followed by “do you think all those companies are going to go out of business?” I could see the light bulb go on!
Investors have been watching large swaths of their portfolios go down/evaporate for years. The 2008 recession was particularly brutal to many who do not want to do that again. For those close to retirement, the wounds are particularly fresh. The interesting thing is if you had a well-diversified portfolio of investments (I stress diversified here since not all portfolios were properly diversified) going into the recession, if you were to go back and look at your individual holdings at that time, you would find holdings that
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Did not go down as far as others
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Holdings that recovered faster than others
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Some holdings that stood still
So, what does all this mean for you and your individual situation? Remember the old rule of thumb ‘buy low and sell high’? Even in a down market, it is possible to employ this philosophy/strategy. An experienced individual money manager (nope, not talking about your average mutual fund or ETF manager) knows all about the tricks of doing this for retirement portfolios.
The last important question is, will you spend your entire portfolio on the first day of your retirement? I certainly hope not unless you are planning on employing the shot gun strategy (nope not explaining that one) on the second day of retirement! Your horizon is never really short-term in retirement. Why? Because you don’t know the day you are going to die (unless of course your CB is working???!!!). We always need to have a portion of our portfolio allocated to our future income requirements. It’s a rule, like it or not. For those of you who think your expenses are going down later in retirement when you “slow down” and are not doing as much, think again. Healthcare is the fastest growing expense for retired individuals. Even the best long-term care insurance will not cover it all.
In summary, as I said in the beginning, who knows where the stock market will be in 10 to 20 years. However, many of the companies that make up the stock market today will probably still be around then. I think you will find that many are doing better financially than they are today and yes you will find some laggards too. There are more winners today as far as companies that have survived over the last 10 to 20 years than there are losers. This alone gives us some insight as to where the market will be in 10 to 20 years and how your portfolio will be affected.