Bettencourt FG Wealth Management Services would like to discuss AZ retirement savings protection strategies with you. There are two primary and critical investment risks that you should know about. On the one hand, there is the short-term volatility of the stock market. On the other hand, you have the long-term risk of running out of money or outliving your money. The cause of having volatility in your portfolio typically comes from having stocks in your portfolio. Conversely, the cause of running out of money in the long-term is from having too-few stocks in your portfolio. The key is learning how to win the tug of war.
Dealing with Volatility
The balance for most is having the right mix of stocks and bonds. If you have too many stocks in your portfolio, you're going to experience a lot of volatility. By "volatility," we mean ups and downs, and we worry more about the downs. If you have experienced a down market, such as in 2008/2009, you might panic out if you have too much stock exposure. You might sell at the bottom, but you're never going to achieve your goals if you do that.
You Need Growth to Achieve Your Goals
If you have too-few stocks in your portfolio, then your portfolio is going to have basically a fixed income behavior to it. It's going to be more or less a bond portfolio kicking off a fixed income for you, and again, you're not going to achieve your goals this way. Goals typically rise with inflation or even faster than inflation, and the only way to achieve your goals is to have growth in your portfolio. Again, you have to find the best balance between stock allocation and bond allocation in your portfolio.
Don't Use a Reactionary Strategy
Investors, whether they are individuals or professionals, are notoriously poor market timers. The biggest mistake is moving into bonds when times are bad, such as in 2008, or moving too much money into stocks when the times are good and after you've already missed a run-up in the market. It's the same as buying high and selling low. It's the exact opposite of what we should be doing. This is a very reactive strategy and a bad one for investments.
By "Balance" We Don't Mean 50/50
The good news is that there is no need to do this. If you can establish a financial plan that lays out your proper mixture of stocks and bonds, then with enough of your assets in bonds, you can ride out those predictable unpredictable market dips. It will help you sleep at night knowing that despite the fact your stocks are going down, you have the assets in place to help you wait out the recovery, and the recovery always comes.
At the same time, investments in stocks are what enable you to generate the growth in your money needed to outpace inflation and enable your money to provide for you for the rest of your life. To learn more about AZ retirement savings protection, talk to a pro at Bettencourt FG Wealth Management Services. You can retire with more income!Az Retirement Savings Protection