How to Allocate Assets Within Your Investment Portfolio When Your RetireSubmitted by Miller Premier Investment Planning, LLC on September 27th, 2016
If you're nearing retirement you may need to consider asset allocation in a different way. Be aware that while the right asset allocation can significantly reduce your risk in retirement it cannot completely eliminate the risk of fluctuating prices and uncertain returns. The more conservative the allocation in your retirement portfolio the less downside risk. However, it does come with a cost to you and that cost comes in the form of lower long-term returns. These lower long-term returns may increase your probability of running out of money before running out of time when coupled with inflation and longevity risk. In other words your more conservative portfolio could be increasing the risk of you outliving your hard earned nest egg which is the biggest concern of retirees! Take too much risk and experience a bad market when you are taking withdrawals and you may increase the risk of falling short as well. The trick is finding the right balance.
When you were younger you may have invested in stocks and mutual funds for the growth and perhaps the diversification offered. You had time on your side. You invested for the long haul and could weather the ups and downs of the stock market. But, when you're nearing or in retirement the ground rules change significantly. Losses are difficult to recover. Your income stream could suffer just when you're counting on it most.
Traditionally a balance between stocks and bonds is used because these investments usually move in opposite directions. This relationship is what we refer to as low or even negative correlation and it is vital when assembling a retirement portfolio. In fact, research shows the more asset classes you can add to a portfolio with low to negative correlations the smoother the ride tends to be when volatile markets strike. Again the trick is finding the right mix and balance of asset classes for your specific financial situation and retirement needs.
This is where asset allocation comes into play. Because investments may go up and down and your financial needs may vary; your planning must allow for contingencies. Various types of investments can help accomplish this by allocating your retirement nest egg for growth potential, guaranteed income, risk management, and tax efficiency. We can develop a battle tested strategy to help you meet your retirement goals while giving you confidence in your financial security and future. Give us a call today to find out how you can allocate your assets for a more secure retirement and find the right balance for your peace of mind.