Are You Invested Too Aggressively?
If you’re selling shares every month to pay the bills, does a stock market drop hurt you or help you? It hurts, of course. If the market is down by 50%, you now have to sell twice as many shares as before and you’re cannibalizing your portfolio even faster. Dollar cost averaging is a one way street. When the market is down 50% and you’re buying stock, that works in your favor; but when you’re selling shares, that hurts you. It’s called reverse dollar cost averaging.
If you have 20 or 30 years ahead of you until retirement, you should be invested aggressively. You have enough time to make up the losses, should they happen. But if you’re already in retirement or at its edge, your portfolio should be comprised of mostly conservative investments with a goal to produce a monthly income regardless of market performance.