Kennedy: Why near-retirees are terrified to look at their investments

Mark Kennedy / Staff file photo
Mark Kennedy / Staff file photo

If there is anything we oldsters can agree on, it's that we are in a season of 401(chaos).

A couple of nervous 60-somethings called me aside recently and asked me to talk to them about their retirement investments, which took a wicked, double-digit hit in 2022.

Although I'm far from an expert (please, highlight "far from" and "expert") and have no business giving anyone financial advice, they know I read a lot about retirement and personal finance.

I felt like a doctor who was being asked to skip the medical jargon and cut straight to the diagnosis.

"How bad is it?" was the crux of their question, as if showing me a gash in the top of their head.

"Pretty bad," I said, and I could see them wincing. "If your investments are diversified, your balance could be down 15% or so for 2022."

I could see them doing the mental math.

Let me help. For anyone approaching retirement with a healthy nest egg, that one-year hit in investments could easily translate into the equivalent of a year's salary (before taxes) or more. Yeah, ouch!

All around America, IRA and 401(k) year-end statements are hitting mailboxes this month, and with few exceptions the results are ugly. If your statement is lying unopened on the kitchen table, I feel your pain.

(READ MORE: Prices are up everywhere with inflation. Except in my 401(k).)

Most older investors have been coached (correctly, I believe) to diversify their investments and have taken it as an article of faith that stocks and bonds don't often go down in tandem. When stocks are down, bonds tend to be up, and vice versa.

Well, 2022 was the exception that proves the rule, with both stocks and bonds falling at the same time. The timing stinks for near-retirees and recent retirees who are counting on their investments in tax-deferred investment accounts to help provide their post-retirement daily bread.

According to the mutual-funds company Vanguard, a balanced investment portfolio (often exemplified as 60% stocks and 40% bonds) fell about 16% in 2022. This represents the worst year for the average 60-40 portfolio since 2008 and the second worst since 1976, according to Vanguard.

If it's any consolation, an average 60-40 investment portfolio in 1931 lost about 28%. Granted, comparing anything to the Great Depression years is, by definition, depressing. But it might hearten you to know that the same 60-40 mix gained on average about 41% in 1933, two years later.

That's the thing about long-term investing. We tend to remember the downs and forget the ups. I reminded my office friends that the S&P 500 index, a common proxy for U.S. large-company stock performance, was up about 27% in 2021, the year before last.

"I'll bet you didn't remember that, right?" I told my friends.

Nope, they agreed, they did not.

I told them that when things are good (meaning when markets are at or near historic highs), to think of their investments as a beer with a head. Investment pros call it a "frothy" market. When markets are peaking, it's possible to think of your invested nest egg as 10-20% froth. So, when that headwind blows through, like it did in 2022, having the top blown off your portfolio doesn't come as a total shock.

(READ MORE: Personal finance: A look ahead to 2023)

The good news is that these market resets are often followed by above-average returns.

And, if worse comes to worst, you can always chug the beer.

The Family Life column is published on Sundays. Contact Mark Kennedy at or 423-645-8937.

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