Taking the Gamble
/Two years ago, my friend was awarded a large divorce settlement and, at age 60, was in the enviable position to retire the following year. He parked his settlement in a cash account because he does not trust the stock market. In his words, “it is a form of gambling.”
He wanted to know how conservative or aggressive he needed to be with his investments. I am careful not to overestimate my familiarity of a friend’s financial situation, but his statement indicated to me his knowledge of investments was very limited, and that was causing him great anxiety. With his impending retirement, he assumed that he would only need income, thus eliminating the need to invest in stocks.
This experience impressed upon me the need to educate clients on the importance of owning diversified stocks (mutual funds and ETFs) in most portfolio designs.
Retiring at 60 is exciting but can come with some challenges. Income is essential, but with at least 25 years to go, you will need growth. Cash and bonds are not growth investments; they provide income and assist in weathering volatile market movement. Stocks provide growth, but can also provide income. In retirement, the first inclination is to remove stocks from your portfolio, when it may only require shifting some of your growth stocks to value (dividend-paying) stocks. This provides income and may reduce some of your portfolio volatility.
Later in retirement, you may lower your stock exposure incrementally. However, determining the acceptable amount of growth and value stocks, as well as domestic and international stocks, in a portfolio is predicated on the investor’s income needs, risk tolerance, and time horizon. If your portfolio is causing you too much stress, it may be time to re-evaluate your objectives.
- Bonnie Struck, CMFC®, Worley Erhart-Graves Financial Advisors
