Good Afternoon,
Attached is the most recent “By the Numbers” piece put out by MFS. The stats I point out below put the size of the S&P 500 into perspective and show how cost of living after retirement can unfortunately increase quite drastically.
“When the S&P 500 fell 58 points on “Black Monday” (10/19/87), the tumble represented a fall of 20.5%. A 20.5% decline on last Friday’s (10/19/18) closing index value of 2768 would equate to a fall of 567 points. The largest drop for the index this year has been 113 points (source: BTN Research).”
“The national median cost in 2017 for an assisted living facility (private 1-bedroom accommodation) was $3,750 per month or $45,000 per year (source: Genworth).”
The idea that markets have “fallen X amount of points” is often an easy headline to catch the attention of the average investor. Obviously, it is human nature to hear that markets have fallen 58 points and have a negative reaction. It is our job to temper client reactions by noting that such a drawdown is less than 2% and, while not frequent, such occurrences happen every year and often multiple times.
Another difficult teaching moment for investors is the idea that, later in life, cost of living can increase. The cost of assisted living facilities continues to increase and insurance coverage (or help from children, relatives, charity, etc.) will vary from one individual to the next. This will emphasize the need to grow the nest egg over time by remaining invested in a broadly diversified portfolio built to fit their risk/return profile.
Thank You,
Pete
Peter Malone, CFA
Research Analyst
Direct: 617.226.0030
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109