David McKnight explains why he has chosen to avoid bonds entirely and why you might want to rethink how you protect your portfolio as you approach retirement.

David kicks things off by illustrating the so-called sequence of returns risk.

According to conventional wisdom, bonds tend to be less volatile, so they help smooth out the rough years in the stock market. 

However, bonds aren't the safety net they used to be. And over long periods of time, bonds tend to underperform stocks by a wide margin.

David warns against "stuffing your portfolio with bonds just to be safe." 

The reason for that is that you're not only capping your upside, you're also taking on risks of your own: inflation risk, interest rate risk, and the risk of simply not having enough growth to fund a long-term retirement.

Instead of watering down his stock portfolio with bonds, David uses a volatility buffer.

He keeps 3-5 years' worth of living expenses in a separate, safe, and productive account – his go-to option is Indexed Universal Life Insurance (IUL).

An IUL gives you safety from market downturns because it's linked to an index but has a floor that protects you from losses. 

In other words, an IUL has potential for reasonable growth without the full downside risk of stocks.

David discusses a scenario in which he's retired and living off his investments when the market suddenly drops by 30%...

The approach David relies on enables him to have peace of mind – something that really helps because, as he puts it, "The more you can take emotion out of the equation, the better your investment returns." 

David goes over what to consider and do to get started with a volatility buffer.

 

 

Mentioned in this episode:

David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com