Tony Robbins Says the Stock Market Can Make or Break Your Retirement — Here’s How

Tony Robbins: New York Times No. 1 Best-Selling Author

As you gear up for retirement, you may be concerned about how prepared you are, what you can do to maximize your golden years’ nest egg and whether there are any strategies that can help you better prepare to enjoy a relaxed, stress-free and well-financed retirement.

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Tony Robbins, a renowned financial advisor, has drawn attention to an often-overlooked concept when it comes to planning for retirement with market investments: understanding the sequence of returns.

Keep reading for more information on this crucial sequence and what you can do to both better understand it and work within Robbins’ framework to optimize your gains before clocking out for the last time.

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What Is the Sequence of Returns?

The phrase “sequence of returns” essentially refers to the order in which your investment returns occur. It sounds like a clear enough concept to grasp, but it can be quite complicated, and the implications for your retirement portfolio could be profound. The timing around your gains and losses can dramatically impact the final state of your retirement finances.

If you get a run of poor returns at the outset of your retirement and need to start making withdrawals, you’ll dip into your capital. This can leave significantly less in your portfolio when the market inevitably recovers.

Pluses and Minuses: Understanding the Sequence of Returns 

The sequence of returns is a critical factor; it’s less about the average performance across your portfolio and more about the timeline of your gains and losses.

It might seem like the timing shouldn’t matter as much as your overall performance, but the devil, as always, is in the details. Even if two portfolios mirror each other in average returns across a span of time, the sequence of those returns, and any associated withdrawals, can dramatically affect the final value of each portfolio.

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Early Losses Can Lead To Permanent Shortfalls

Robbins stresses the profound impact early losses can have on your retirement savings.

If a market downturn hits soon after you retire and causes substantial losses, it can limit your remaining investment capital to the point where it becomes difficult to recover. The market will eventually bounce back, but the damage may have already been done.

If you need to withdraw money to cover your day-to-day spending during the initial downturn, you would be cashing out a substantial portion of your portfolio. When the stocks and commodities you still hold start to regain their value, there will be less potential for profit.

How Sequence-of-Returns Risk Impacts Your Retirement Portfolio

Robbins is clear on the importance of this issue, stating that a lack of understanding could lead to a scenario that no retiree wants to face: outliving their retirement savings.

“If they need to start spending during one of these periods when the market is spiraling or even flat, there can be a devastating impact on their nest egg,” Robbins said.

If the sequence of returns has a negative impact on the value of your portfolio after you retire and you need to withdraw funds to cover your living expenses, the length of the market downturn can have an especially significant effect.

Robbins advises those at or approaching retirement age to consider two strategies that may help offset these risks. The first tip is good advice no matter your age or where you are on your investment journey: Cultivate a diversified portfolio. Spreading your investment capital across a mix of assets in different sectors can serve as a buffer against market volatility.

The second tactic is to plan your withdrawals strategically. Try to avoid withdrawing during market downturns, but consider some modest profit taking when your portfolio is doing well. This leaves you with more gas in the tank to weather future downturns and capitalize more efficiently on market upturns.

Making the Most of the Stock Market for Retirement

From Robbins’ perspective, a clear understanding of the sequence of returns is a key factor in harnessing the full potential of your portfolio during your retirement years. He emphasizes the importance of carefully monitoring the timing of your portfolio’s gains and losses and carefully managing your withdrawals. The takeaway? Informed and strategic planning can help secure a worry-free retirement.

It’s less about the total value of your portfolio and more about the timing of your earnings and profit taking. A clear understanding of the effect the sequence of returns can have on your post-retirement assets can make all the difference between a comfortable retirement and having to go back to work.

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This article originally appeared on GOBankingRates.com: Tony Robbins Says the Stock Market Can Make or Break Your Retirement — Here’s How