Accumulators are adding to their nest egg. Many are dollar-cost-averaging (DCA) by investing a fixed number of dollars on a regular basis. As long as they don't plan to start drawing funds within the next 5 years, they should love a market that is dropping because they can lower the average cost of their shares. Young people pay attention! Even in a market that goes nowhere over an extended period, accumulators can come out ahead by continuing to buy as prices drop. DCA is a relatively simple process. Decide on how your investments are to be allocated, and then sit back and watch it take place pretty much automatically.
Decumulators are in an entirely different boat. One that can sink them in a declining market if they aren't careful. They are drawing a paycheck from their nest egg. They are said to be on distribution. They are in the opposite situation of DCA and, therefore, need to be careful. It's not just a matter of reversing the accumulation process and selling a given number of shares of stocks or funds across the board. Doing such would require selling more shares in a declining market to raise the required distribution. Instead, decumulators need to think about a plan whereby they set up a short term fund from which to fund their distribution. Typically this fund is started with at least payments for 9 months and longer. For example, if a retiree requires $3,000/month from his or her nest egg, they would want to put at least $27,000 in the fund. Next, you need to replenish - aggressively in a down market. This requires dividends and interest to go into the fund. If you decide to reduce stock exposure by 5%, it should go into the fund.
This process has enabled decumulators to avoid having to liquidate stocks at fire sale prices and, therefore, keeps positioning structured for the next market upturn.
In the absence of a thought-out plan, it is easy to have emotions come to the forefront and dominate the investment process.
Accumulators: enjoy the market and buy on the cheap.
Decumulators: proceed in line with your plan.
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