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It is our goal to assist investors who do not fit into a traditional mold; investors who are not content to let macro forces in the stock market determine his or her success, failure, or financial security. Nor do we counsel investors who are content to hope in vain that government funded programs such as Social Security will provide a meaningful cashflow at retirement. In fact, investors who find their security in a “balanced portfolio” of mutual funds and bond funds really need read no further. |
Notwithstanding the above discussion, we DO support the concept of asset allocation based upon various risk categories. However, we also believe if you are going to invest in something with the same risk characteristics as the stock market, that your return expectation should be substantially higher than an average unsecured return of 6% – 8% and hoping beyond hope that the market doesn't decide it needs a 40% “correction” the same year you were planning on retiring.
By way of example, a traditional investment portfolio in a qualified retirement plan for a 45 year-old might look something like this:
| Category |
|
Expected Returns * |
| Large Cap : |
65% |
8% |
| Mid/Small Cap: |
15% |
9% |
| Stable value bonds or money market: |
20% |
3% |
Let's say you are fortunate to have accumulated $150,000 and plan to add $10,000 per year to your savings. Using the above portfolio mix, and assuming no ugly surprises, you can expect to have accumulated approximately $1,063,000 by the time you are 65. Feeling pretty good about that? Not so fast.
Since you will definitely want to take less risk once you are retired, you will relegate a higher percentage of your portfolio to C.D.s and money market funds. However, since you are an astute investor, you will find a way to achieve a better than average yield; say 5%. Good news!! This will allow you to withdraw $7,015 per month as long as you both you and your spouse plan on dying by age 85. (Acutarily, not likely if you are both healthy at age 65.) Still sounding pretty good? Wait. At age 65, the $7,015 you will be living on is equivalent to $4,281 monthly in today's dollars, given an average annual inflation rate of 2.5%. By the time you reach age 85, it will be equivalent to $2,613 monthly today. Of course, Social Security will help, but wisdom dictates you should not count on current benefit levels remaining the way they are.
Our point is this. In order to prosper today and tomorrow, you must think outside of the box when it comes to investments. Why be satisfied with a 4-5% C.D. return, when it is possible to earn significantly more with only a moderate increase in risk? Intelligent investors do not run from risk. They manage it, and profit from the fear it breeds in unsophisticated investors.
One other thing: At ICAFS, we can show you how to invest money held in qualified retirement plans such as 401(k)s and IRAs in instruments that are not publicly traded in order to achieve higher yields.
Please feel free to contact David Kennedy at 719-272-8011 if you would like to discuss investment strategies.
* For illustration purposes only. Value and interest rates are not guaranteed |
