These days, technology seems to pretty much rule our lives. From cell phones that are really computers, cameras, music players and games, to social media use, the tracking of our preferences by the likes of Google or Amazon, online ordering platforms and hundreds of other advancements, most of us have come to rely on technology daily. Heck, I tried to take my kid Sophie’s phone away once and I thought the kid was going to go into cardiac arrest. She actually called it child abuse!
Now, I’m the first to admit that I too rely on technology both personally and professionally. I use it to keep in touch with my family, to buy sporting tickets, and of course – technology is the backbone of the financial systems we design and deploy for folks as they prepare for retirement. Frankly speaking, our engineered systems we utilize to help folks create a sound retirement system would be much more difficult without systems coupled with quantitative data.
But you know, there’s also such a thing as “information overload”. I find the barrage of information coming at us daily can be overwhelming. It gets to be a problem when we have too much information, not enough time to truly process it, and unfortunately, disinformation. I’ve heard it said that “Getting information off the internet is like drinking from a firehose.”
Not everyone feels overwhelmed by the torrent of information. Some folks are actually stimulated by it . . . especially these days. But it’s been my experience that those preparing for retirement tend to find the abundance of financial information and advice available online to be overwhelming and frustrating. I find that it’s more palatable for many pre-retirees to simplify retirement planning by breaking it down into bite-sized pieces. By focusing on a few key areas of planning, especially with the guidance of a true fiduciary, you can help allay your fears and motivate yourself to action. Following some basic rules can help you make informed choices, regardless of your investment experience. So, to help you get started, I’d like to offer a few tips for planning your retirement.
For starters, figure out what your investment time horizon is. This is the amount of time you have left before you retire when your money needs to start providing income once your paycheck stops. This is an important starting point because it will affect how well your portfolio can handle the ups and downs of the financial markets. For example, if you have fifteen or twenty years before you retire, you may be able to invest more aggressively than if you need to take income within the next five years. The stock market has historically been the best place to grow your money, but there’s no guarantee you won’t experience fluctuation and losses. And if you have an inappropriate accumulation strategy when you should be moving to a distribution strategy, you could possibly be setting yourself up for a financial disaster . . . remember 2008? How about 2020?
Going hand in hand with your time horizon, you need to also consider your risk-budget. This means determining how you will be able to manage a potential investment loss. For example, if you have a big loss and you need your money relatively soon, you’re less likely to be able to stomach much of a loss. On the other hand, if you’re investing for the long term and don’t need the money immediately, your risk tolerance may be higher.
You also need to consider your emotional ability to withstand a possible loss and quantify it. If your retirement system keeps you up at night, you may need to reconsider your risk budget and your process. Remember folks, the only two things that are controllable when dealing with the markets are your risk-budget and your process . . . and you need to define both in order to help put you in the highest probability of financial success.
Once you know what your investing timeline is, your process, and your risk-budget, make sure that your investments are diversified. Investments come in many flavors, each with its own set of risks. Diversifying your retirement savings among different types of investments can help you better manage the ups and downs of your portfolio. For example, when most people think of risk, they think of market risk — the possibility that an investment will lose value because of a market drop. But these aren’t the only risks you need to consider. All the risks that may have been dormant during your accumulation years, such as interest rate risk, longevity risk, inflation rate risk, geopolitical risk. All of these come alive during your retirement, or distribution, years. Lately, just look around.
With all the risks folks, there is nothing like having a sound retirement system to give you a peace of mind. And I don’t mean just have a collection of different investments thrown into an IRA or brokerage account and hope for the best. Hope is never a good financial strategy. You need to have a comprehensive and coordinated system for how your assets will complement each other and work together. All of your investments should have a specific purpose. For example, what is your downside risk mitigation system . . . do you have one? Should you? You see, incorporating a downside risk management system is crucial and should be the foundation of your system. As we like to say, if you take care of the downside, the upside can take care of itself.
Folks, creating a thoughtful and strategic retirement system based upon risk-first is more important than any individual investing decision you’ll make. So, I encourage you to take a break from retirement information overload. Keep your emotions in check, and certainly . . . don’t put it off.
And as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter offers investment advisory services through Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com. Insurance products, including annuities, are offered through Cutterinsure, Inc., (MA insurance license #2080572). Cutter Financial Group and Cutterinsure are affiliated and under common control but offer services separately. Members of Cutter Financial Group’s management receive revenue directly from Cutterinsure. Any compensation received is separate from and does not offset regular advisory fees. Cutter Financial Group does not charge advisory fees on any insurance products. We do not offer tax or legal advice. Always consult with qualified tax/legal professionals regarding your own situation. Investing in securities involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. This article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Market data and other cited or linked-to content in this article is based on generally available information and is believed to be reliable. Please contact us to request a free copy of Cutter Financials’ Form CRS, Form ADV 2A and applicable Form ADV 2Bs.
