With all the recent volatility in the stock market,
retirees are confronted with the difficult question of how to grow money productively while safeguarding against downturns
from which they may not recover. How do you outdistance inflation and ensure that your assets stretch the length of your retirement while mitigating dramatic market loss? How you answer the questions may be the difference between running out of money too soon and living a prosperous retirement.
We have learned over the course of the last 10 years is that the stock market is more unpredictable and volatile than ever. Buy and hold may have been a strategy that worked in the past, however, it can be fatal to your retirement strategy if your investments experience market losses at the wrong time; it could force you to postpone your retirement indefinitely. How you answer the questions may be the difference between running out of money too soon and living a prosperous retirement.
When investing in the stock market there are two types of risks that investors face.
We must understand both risks to understand how to safeguard against them. The first is what we call unsystematic risk, which is defined as the risk associated with investing in one single company. Or having too high of a concentration in one company, such as Apple or Google. What could possibly happen? The CEO could die, there could be poor management, or poor products. The way we militate against this risk is having appropriate asset allocation (investing in a broad range of companies and sectors of the market). Is asset allocation or diversification enough? Not enough if we want to protect against the second risk; systematic risk. This is the risk inherent to the entire market or entire economy, such as 9/11, inflation, higher taxes, credit crises, recessions, and depressions.
The most effective way to safeguard against this risk is to incorporate a principal protection program.
This is a strategy that allows you to off-load systematic risk to a large financial institution. These strategies allow you to link growth to the upward movement of the stock market, while safeguarding your retirement assets against market losses.
If your assets are exposed to market risk (losses) and you would like to know how to grow your assets safely and productively, please contact my office directly at 952-657-5056, or e-mail at email@example.com to see how this wisdom can work for you.
Used with permission from David McKnight and Larry DeLegge, “Changing World of Retirement Planning”.