Investing can be a very stressful business, especially for those of us who are retired or approaching retirement.
Protecting the nest egg becomes very important as we approach the time when distributions will become a reality. Behavioral finance studies have repeatedly shown that many Americans would rather live on less in retirement than spend their retirement savings. And this mentality is exacerbated in adverse market conditions.
What can we do to take emotion out of the equation so we can enjoy our retirement savings? The answer is simple: stop relying on luck to grow your portfolio. We are more often rewarded when our process and planning are executed correctly.
Nobody really figured out how to time the market, and if they did, we’d all be following their lead. This is where most investors stop and leave their money to chance. The typical investor will take buying advice from colleagues, family or neighbors, and when the deal is good, they can sometimes turn a profit. However, market volatility has a way of pulling the rug out from under this type of investment plan.
Instead, we should follow a process that removes as much emotion as possible from the investment strategy.
Within the Financial Enhancement Group, our portfolio managers have created the Risk Barometer to achieve this. The Risk Barometer combines economic factors, technical analysis and seasonality that guides our team as we invest for our families in 31 states.
No process will be perfect; however, it gives you a much better chance of staying the course in the long run. And when market uncertainty hits, you can be prepared.
Planning is also an essential part of the investment process. When we hear, “You shouldn’t have all your eggs in one basket,” our minds often immediately visualize our investments. Remember that this is also the case for types of investment accounts.
If we as investors don’t build proper tax diversification into our financial plans, we make Uncle Sam the primary benefactor of the wealth we’ve worked so hard to create.
What is meant by tax diversification? We recommend having Roth money, non-retirement money, and tax-deferred money. Our 401(k) will be the biggest pool or bucket of investment dollars for many of us. That said, our 401(k)s shouldn’t be our only investment vehicle. Tax diversification helps spread your exposure to tax code changes and potentially higher future taxes.
Once you have a process and plan in place, tracking execution is paramount. We must also remember to monitor our plans and make adjustments as the world changes. If you don’t revisit your goals and make calculated adjustments when circumstances change, you could end up on the wrong track.
If you want to handle things yourself, that’s your business. However, if you are looking for a fiduciary to manage the financial area for you, this is our expertise. Do not hesitate to contact our team for a free meeting on the next steps.