Planning for Portfolio Recovery Time

If recent market volatility is on the mind of investors and taxpayers, no doubt a chat about recovery time is in order, particularly when taxpayers have about a decade left before retiring.

The calculations below assume that the investor's savings of half a million are in a registered account so that the earnings are not eroded by income tax for the purpose of this illustration.They have lost half their value in market turmoil. How long will it take to recover? Rate of return will matter, a lot. So will inflation protection.

Doing the math, if this investor were to invest his entire remaining portfolio in 10-year government bonds, which are currently yielding 2.88%, his saving would have recovered to $332,085 at the end of 10 years. In order to make it back to $500,000 before retirement, he must add an additional $14,730 to the pot each year.

He should also keep in mind that, depending on inflation rates over the next ten years, that $500,000 could have a purchasing power of less than what $400,000 has today. Astute investors will be looking to their tax and financial advisors for help with this significant challenge to find cost, tax and debt management efficiencies to help build up the fortress.