Retirement issues require a different finance investment strategy than was necessary in your working years, but that doesn't mean that the most conservative strategy is automatically always best. Below are listed some important steps to the best investment suggested by Daniel Kalenov a financial planner and Principal Fund Manager of Global Diversified Partners, LLC:
Starting Out
While a person is in the accumulation stage of their working career, personal finances are increasing and human capital potential is high, so a financial planner will assess risk tolerance, the time frame, and then usually create a static portfolio asset allocation together with a method of finance investment to rebalance finances on a periodic basis.
Also, an ongoing saving and investment plan is primed to assist a client in achieving an important financial life benchmark such as creating an inflation-adjust income stream that will continue throughout a 20-30 year retirement period.
It's normal for a financial professional, dependent upon individual circumstances, to reduce portfolio equate exposure as a retirement date nears and increase the allocation to other conservative selections like fixed income (bonds), cash and ultra-short duration bond holdings to be used as reserve for withdrawals.
At first glance, the assets management strategy seems to be effective; it's correct to shield a retiree from future (or current) unfavorable stock market conditions and the resulting time needed to recover from an unfavorable sequence of market returns, most especially in the case of systematic portfolio withdrawals.
Just be aware that the common tendency for planners to maintain a reduced exposure to equities as the retiree ages can turn out to be an error per the analysis.
Reducing Equity Exposure
Financial planners do lean toward decreasing equity exposure in retirement portfolios as life expectancies and time frames become shorter. This strategy of employing a declining equity glide path can generate worse results than maintaining a static, reduced allocation to stocks.
Planners don't expect retirees to have to cope with the upset and loss of money which can occur with an aggressive allocation to stocks so they choose this route instead. Retirees feel vulnerable because they need to rely on the portfolio to maintain living expenses.
What should be happening instead?
1. Decrease stock exposure the first year in retirement.
Instead of focusing on the stock market, concentrate on the retiree's emotional state which can change as they move from an accumulation to portfolio distribution frame of mind. Special attention should be paid to the issues that create uncertainty, paying special notice to household basics.
2. As confidence grows, increase equities.
Naturally it depends on a person's circumstances, coverage of household expenses and how the portfolio has progressed, but as assets management helps the portfolio grow, equities should be increased during year three of retirement.
3. Learn how to maximize Social Security.
Remember that Social Security can be considered part of a fixed income strategy, thus letting the individual expand their allocation to stocks throughout retirement.
4. Life expectancy.
Individuals in good health and with long life expectancies in their families have additional time to weather out stock market volatility.
5. Stay aware of portfolio withdrawal rate.
Keep in mind that an unfortunate series of portfolio losses during the first half of retirement might not seem so bad, but can lead to a fast, unrecoverable depletion of money in the second half. So do a portfolio withdrawal rate checkup every two years.
Daniel Kalenov, Global Diversified Partners offer information on retirement planning including tips on setting retirement goals, and professional retirement planning services to help you make the best of your financial planning for retirement. Let us get you started right, for your retirement money at Retirement savings plan.
Learn more about real asset investing, retirement security, offshore diversification, and many other topics you can use to shape your future, please visit here: https://danielkalenovglobaldiversified.wordpress.com
No comments:
Post a Comment