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Two Ways To Ruin Your Retirement Portfolio

It's time to focus on these critical retirement issues

I always enjoy working with investors who are fully engaged in living their retirement dreams.   For some that means spending time with their grand kids or taking up new hobbies.  While others have more time to devote to their investment portfolio and planning the right path forward for their hard earned nest egg. 

Investors currently in retirement are usually more risk averse than those who have time and a consistent income steam to make up for bad decisions.  During the growth phase of your life, you can afford to be more cavalier with your investment portfolio or take greater risks.

However, there is a different (more conservative) mindset that comes with the knowledge that you are no longer able to make up for a big mistake.

Most investors I come into contact with are very aware of the typical pitfalls such as high fee investments, poor asset allocation choices, or inattentive financial advisors.  Those are all well publicized subjects that are easily avoided through a low-cost and diversified investment portfolio made up of ETFs.

Yet, less talked about are the psychological worries over political, social, and economic cycles that induce fear-based investment decisions.  They fret about who the next president will be, when the Fed will raise rates, or how the socio-economic picture in China will impact their lives here at home.  I haven’t met a retired investor who isn’t worried about what is going to happen to the U.S. dollar and the impact of inflation on their cost of living.

All of these concerns are completely valid, but the first step in dealing with them is realizing that worrying isn’t going to solve anything.  There is nothing that any single individual can do to impact the outcome of these events or forecast how they will move the markets.  The reality is that watching 16 hours of Fox News, CNBC, or MSNBC every day isn’t going to provide any answers either.

In fact, it can lead to poor decisions during even brief corrections that are born out of fear of loss rather than sound portfolio management choices.  It can also result in trying to time big events such as a Fed rate hike by making significant asset allocation choices based on what you think “should happen” rather than what does happen.

The reaction to the news is often times more mystifying or confusing than what traditional logic would dictate.  The bottom line is that the markets aren’t logical, they are psychological.

That is why investing is so difficult and requires a great deal of planning to execute successfully.

The other big mistake that I see many retirees make is relying too heavily on their investment portfolio to fund an unrealistic lifestyle.  Let’s face it – advancements in the medical and health education fields are leading to a much longer life span than many people anticipated.  Rather than relying on the income generated by your portfolio lasting 15 or 20 years, it could easily need to be stretched to 30 or 40.

In order to combat this issue, you should be regularly evaluating the annual income generated from your portfolio, your living expenses, and market factor that may affect your account balances.  It’s imperative to maintain a withdrawal rate that is realistic enough to be replenished through capital appreciation or income generation.

Any shortfalls may need to be solved through a reduction in discretionary expenses or adjustment to your investment plan.  This is a regular exercise that a trusted and competent investment advisor can help you strategize as well.

The Bottom Line

A successful retirement requires a well thought out investment plan combined with regular maintenance to ensure you are on the right track.

In addition, it should be a priority to disengage from the “wall of worry” that pervades our every day lives.  Stay focused on the things that you can control such as your investment decisions, asset allocation, expenses, and advisors.

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The post Two Ways To Ruin Your Retirement Portfolio appeared first on FMD Capital Management.

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