Let’s suppose you’re nearing or are in the process of retiring. Your retirement fund which has been working hard lately trying to make up on the time you’ve lost due to the global financial crisis. changed the rules for constant and steady returns.

Your financial advisor has asked you a plethora of questions. He also informed the client that they had a balanced investor profile. You weren’t sure what this meant, but it seemed like the adviser was treating you as normal and that was reassuring. The man also believes that because you’re normal, that he’s likely to invest the majority of your funds in defensive investments such as cash, fixed interest bonds as well as hybrid securities and possibly the mortgage fund (cringe). The remaining money will not be retiring, it’s likely to be working in the stock market or other investments that are ‘growth’ to ensure you have an easy Retirement Planning .

You’re not sure. Do you think this is the right way to invest in retirement? One that is based on your risk profile’ instead of your requirements? If you’ve invested anything in the stock market during the last couple of years, then you have an idea of what you did when markets plummeted. If you’ve ever felt like you’re getting a heart attack when your investments fell, then you’ve not been taking good care of yourself or have fed yourself the incorrect data. The issue with basing an investment strategy around risk profiles’, as many financial advisers do is that it doesn’t meet your requirements to market risk.

An alternative approach to an investment strategy that is safe in retirement would be to decide on the amount of income you’d like to collect every calendar year. Take into consideration the cost of living, which includes holiday expenses and purchases of assets. Divide that figure by 3. That’s the amount you’ll should put aside in defensive assets. The remaining nest egg is working to benefit you with whatever “growth” investments you’re comfortable with and that are appropriate to your risk profile.

The amount you earn or draw down from your pension is taken out of your assets that are ‘defensive. The market may be in a downturn for three years prior to the time you are required to remove any of your growth assets. Many financial advisors utilize the ‘risk profile’ method to invest and change the portfolio’s balance annually or on a more frequently basis to maintain the initial allocation of assets and then recouping losses in the process if the market is in a prolonged recession.

The plan is to save 3 years of earnings that you’ll need to cover the income that is also generated by those “defensive” assets. As an example the nest egg was worth $500,000 and you were planning to withdraw $40,000 each year, you’d have set aside $120,000 less income will likely to be generated from this amount in the next three years (depends on the rate of interest). In the right times, you could increase the amount of your defensive portfolio by generating profits from your “growth portfolio. In general, this is more often during good times and less often during bad times. The goal is to have three years of earnings put aside, but only if it is possible to do it without crystallizing losses.

This strategy is suitable with any risk profile and having at least three years of saved income should bring you greater peace of mind and protection in times of market volatility.


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