Question:  

We have accumulated a comfortable sum for our retirement years and beyond. What are your thoughts about being too aggressive, or too timid with our investments?

Answer: 

No one wants to make risky choices at the wrong time and see assets erode. Understanding your personal risk profile is a key component of managing wealth. Wealth preservation conversations are essential, especially when nearing retirement, yet returns are still a fundamental consideration. 

You might be surprised when it comes to wealth preservation and generating return. The design, implementation, and ongoing monitoring of your plan may be something you’d like to partner with a CERTIFIED FINANCIAL PLANNER™ Practitioner to help guide you through the journey.

Perspective: Typically, investors with satisfactory levels of wealth may have a greater ability to absorb financial losses than others. But emotions can hit at just the wrong time. An amount that may initially cause “sticker shock” could be a fraction of your liquidity when viewing the bigger picture. Your advisor can run simulations showing how your portfolio may react to market pullbacks or changes in interest rates. Seeing potential outcomes may help clarify the level of risk that matches your tolerance and investment goals – and it may turn out to be higher than you thought.

Time and Age: The length of time you expect to hold an asset is a factor component of risk tolerance. Retirees typically have shorter time horizons and take portfolio withdrawals. Meanwhile, age could have less impact on overall risk tolerance for more affluent investors who have income needs already satisfied from other sources. If it’s unlikely you’ll need to liquidate specific assets in the near term for spending needs, it may be appropriate to maintain a less-conservative allocation for longer.

Too conservative can be a risk: Avoiding undue risk is always wise. However, it may be prudent to balance risk with potential return while planning to outpace inflation and meet financial goals in retirement, whether that’s supporting your grandkids’ education, giving to charitable causes, or taking that once-in-a-lifetime trip. With the more complex planning needs of an affluent investor, it’s important to discuss with your financial advisor an asset allocation that can help maintain your lifestyle over the long term.

Timing of life vs. market timing: Creating a diversified portfolio and revisiting it as your life and goals evolve is more important than any one investment decision. Your financial advisor can help you determine which opportunities provide the best potential for reward for the risk taken that aligns with your unique circumstances, life plans and goals, and provide you with a process and consultative approach to avoid “jumping” into and out of the market at the wrong time. 

More risk assets, more thoughtful rebalancing:  Greater wealth often means a higher concentration in stocks or equities, which can change significantly in value over time. This makes it important to establish a plan with your advisor for periodically rebalancing your portfolio to its target asset allocation. It’s imperative for your advisor to know your whole financial picture; holding assets in multiple accounts without informing your advisor may increase the risk of becoming overly concentrated or underexposed to certain markets. Your selected strategy will have important tax consequences, so talk through various approaches to determine the best fit.

Withdrawal strategy: Capital preservation is important to prevent income loss. You’ll want to have a holistic income strategy for cash flow needs and identify income sources including Social Security, pensions, dividends, bond coupons, etc. Work with your advisor to address any potential mismatch between what’ll be generated and what you’ll need to maintain your desired lifestyle as well as access capital if there is ever a need.

Transparency: Have conversations with your financial advisor to help you understand your risk tolerance today, and how risk can affect your future. When ideas and numbers are tangible, they become more manageable. Your financial advisor can speak directly to the matters that will impact your portfolio the most but change your lifestyle the least.

Tangible and Manageable: Maintaining a large portfolio into and through retirement doesn’t have to mean giving up on returns and opportunities for growth when that risk is managed thoughtfully. A true understanding of your overall financial outlook and transparent conversations with your financial advisor may help you get there. Stay focused and plan accordingly.