Be Fearless (But Smart) with your Retirement Portfolio!

When considering current events and the economy, are you concerned that the stock market is too high?  How does this make you feel about how much of your retirement savings you should be risking in the market?   You are not alone if you are worried about what to do with your retirement portfolio, even to the point of paralysis.

Ups and downs in the stock market are expected and a fact of history. We know this intellectually but often, not intuitively or emotionally.  There is a way though, to strategically plan for such swings.  This is especially important if you are approaching retirement or newly retired. 

Be fearless, but smart, with your retirement portfolio. 

**This is the first in a 3 part series on the theme of Risk, Fear and Investing Properly for Retirement.

Here are Four Keys be Fearless (and Smart) with your Retirement Income Needs

  1. Take the right amount of risk

60/40?  50/50?  All cash? Oh my! 

With a few exceptions, we must take some risk with our retirement assets.   Your “risk tolerance” is made up of three parts: 1) your desire to take risk; 2) yourcapacity to risk, and 3) your need to take risk.  Some of us have a greater capacity to take risk (you can withstand losing some money), and some of us have capacity, but no desire.  Even still, some of us have no desire but a definite need to take some risk (or you run the risk of running out of money). So, the right amount of risk is unique to you and your circumstances– your whole situation, taking into account the size of your portfolio and how you plan to live and spend in retirement.   

  • Create a plan for when and how you’ll spend your investments

Remember that your retirement portfolio exists to create income for you throughout about 30 years of retirement, and most likely, a legacy beyond.  For most, your portfolio’s main purpose is to fund your retirement paycheck, after your traditional paycheck stops. 

You need a plan for which assets will be tapped first and second (and third and so on…) in your retirement paycheck.  Investments that will be used to fund early years should take less risk.  This is because there is less time to recover losses in the event of a pullback.  Assets that will fund later years can have more exposure to risk (there is more time to recover losses from market volatility).  There are a variety of opinions as to how to do this optimally and its not an exact science.  In general, I recommend a combination of approaches that includes keeping 2-5 years of income in assets that won’t have a lot of exposure to the vagaries of the stock market.  

  • Have a war chest

You can afford to take risk (the right amount of risk) and feel good about it if you have an emergency fund, a war chest of assets that can be tapped in an emergency.  By “war chest” I do not necessarily mean an oversized stock pile of cash.  The right size of an emergency fund depends on your spending needs and your other assets, and also how much risk you’ve taken in your retirement investments.  Having too much cash on the sidelines, without the potential for growth, could mean you are putting your retirement in serious jeopardy.  Also, the size and need for an emergency fund in retirement is very different from when you worked.  In retirement years, you will likely have fewer expenses (e.g., no funding of retirement plans or college savings) and you have other assets that can be tapped in emergencies.  Your war chest needs to reflect your overall retirement strategy with all assets and your spending taken into account.

  • Be disciplined, but nimble

A world pandemic, large job losses and despite a surging stock market these past few months– to many these are scary times.  If you have taken the right amount of risk with establishing short-, medium- and long-term assets,  andyou have a plan for when you want to tap those assets, and you have access to an appropriate amount of cash for emergencies, you’re almost there!  The final ingredient is discipline (with a dollop of flexibility).  When the stock market declines (and it will), it’s ok because you planned for it!

The prudent approach is to rely on your good planning and historical data that shows what we have learned from more than a century of investing– the stock market goes up and down. But over the long haul, the trajectory has always been upward.

It is your portfolio and should serve you and your goals at all times.  You can and may adapt your investment strategy as your circumstances and the economy changes.  Can you retire sooner?  Should you buy a vacation home?  Can you give more to charity?  Or perhaps you’ve had a significant life event, such as a death or divorce.All of these circumstances may be a reason to rethink your current strategy.  Be nimble here.

Reacting to short-term market events by making dramatic portfolio changes makes it difficult to stay on course to achieve your investment goals.

Don’t let fear stand in the way of investing smartly for your future!  A plan which combines the right amount of risk AND a commitment of discipline will allow you to sleep at night.  Remember, you can be fearless if you have a plan so get started today. 

Have questions? Want to learn more? Email Lorie or schedule a no-cost, no-obligation call with her here:

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