A Balanced Portfolio Destroyed My Parents' Retirement
The balanced, diversified portfolios advertised by big firms aren't as secure and reliable as one might assume.
Mike explains how a balanced portfolio destroyed his parents' retirement.
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Mike:
When he went to the, his advisor, his advisor gave him the same advice you get today. If today you go to, you know, one of these big firms, they're all gonna tell you basically the same thing. They're gonna say, here's what you should do. You should take that $300,000 and you should have a diversified portfolio where approximately the numbers may change a little bit, but approx, ultimately 60% is in some diversified mix of stocks. And the other 40% is in a diversified mix of fi, which stands for fixed income or bonds. That's what the industry told my parents. It's the same thing. They tell them today. It's like, if hello to them today, they're gonna tell you something pretty darn close to that. Here's what happened to my parents. Remember they retired January 1st, 1999. And do you know what the stock market earned in 1999? It was like 20%, right?
Mike:
Had a great year. My parents at the end of the year, they're like, wow, this is great. I took my $12,000 of income out of the account. And on top of it, you know, my balanced portfolio, not only did it generate income, but my 300,000 grew, they had something at that point, they call it three or something like that. Right. Do you remember what the markets did the next three years? In 2000 and in 2001 and 2002, do you remember what happened? Well, 2001, that was the.com crash. The NASDAQ, which is like that. That's when Amazon went from over, I know these numbers are gonna be funny, cuz you'll say, come on Mike. Really? Yeah. Amazon at the time had broken a hundred dollars a share today it's like 3,500 or some crazy number. But at the time, a hundred dollars a share and went below 10 lost 90%.
Mike:
Right. That's when like tech companies going under left and right doc then NASDAQ lost 75% of its value in like a year and a year and a half then 2001. Anyone remember nine? Yeah. What kind of impact did that have on the stock market? And then 2002, we had a recession in those three years, the stock market was down, you know, anywhere from 45% to 75%, the market got crushed right over, not fast. It was over three years. We started wondering if the market was ever gonna go up again. What was happening to my parents? Because remember what were they doing each of these years? It was like, well, we're, we're at three 20. Well, we gotta take out 12 K we gotta take out 12 K and we gotta take out 12 K right? We gotta take out $36,000 over those years. And we were having a loss loss loss. How much money do you think they had left over four years in retirement because remember the first year, 1999 was good year. Now we're four years into retirement. Now think about this. My dad worked for 30 some years at state farm. It took him over 30 you years just to get to this 300,000 number up here. How much did he have? Four years in retirement?