An Investment Strategy that Reduces the Risk of Black Swans

Predicting when the next black swan event will take place, and what will cause it is an impossible task. But that doesn't mean you can't construct a portfolio designed to reduce the risk of black swans, according to Larry Swedroe and Kevin Grogan, both of whom work at Buckingham Strategic Wealth.

In their latest book, Your Complete Guide to a Successful & Secure Retirement, Swedroe and Grogan present an investment strategy designed to reduce what is often referred to as "left tail risk," a risk they say is increasingly important those approaching and living in retirement.

Why is that so important?

For one, in retirement, Swedroe and Grogan note in their book that retirees no longer have the ability to generate income to make up for equity losses; they have less time for markets to recover from bear market losses; and their tolerance for risk tends to decline. And two, they wrote, the order in which investment returns occur increases in importance in retirement. Once retirees begin to withdraw from their portfolios, large losses in the early years of retirement can greatly increase the odds of outliving their assets.

In this Retirement Daily podcast, Grogan discusses how investors can build an efficient portfolio that reduces the risk of black swans.