is a speaker, independent wealth management consultant and author of three books on investing and decision-making.
Consider the Great Recession of 2008 or the COVID-19 crash of 2020. These events blindsided even the most seasoned investors, highlighting the need for flexibility and resilience. Instead of sticking rigidly to our original plans, we had to adjust our strategies, reallocate our resources and weather the storm until calmer waters prevailed.
For instance, those retiring with an expectation of drawing a certain sum every year from their portfolio may be in for a rude shock if the market is in freefall at the start of their retirement. Let’s consider two different cases. In both cases, the average return and the standard deviation over the 15-year term is the same. But in the first case, Mary runs out of money before year 12; in the second, she is still going strong after 15 years and could go much longer depending on market conditions after the initial 15 years.
Not that adapting will be easy. Reducing planned expenditures is not a straightforward task for most. However, pretending that there is a plan that can anticipate and avoid every unpleasant circumstance is both ridiculous and dangerous. As an ancient Chinese proverb rightly puts it, “A wise man adapts himself to circumstances, as water shapes itself to the vessel that contains it.”