Your Toolbelt For Asset Allocation in Retirement

​You’ve spent most of your working life saving for retirement. The assets you’ve acquired throughout the years are put in place in order for you to live the life you want after you are done working. But now that you are in retirement, what is the best plan to manage your assets? Let’s go over a handful of tools you’ll need in order to allocate your assets in a functional, practical, and fulfilling way.

What Is Asset Allocation?

We can’t talk about asset management without talking about the basics! Asset allocation is the foundation for all of your investing and asset management strategy. The process of allocating assets rests on the combination of places to store your money. There are three primary places:

• Stocks
  • Investing in stocks offers the highest percentage of returns, but are inherently more volatile. Stocks also have the highest short-term fluctuation rate, meaning your risk tolerance becomes increasingly important. Finally, stocks are equity ownership - meaning you have some ownership in an organization.
• Bonds
  • A safe and secure place for your money is in bonds. They offer a lower percentage of return than stocks but significantly higher than a traditional savings account. Bonds are a great way to invest your money with little risk, as they’re not fully reliant on an organization’s performance (like stock). Instead, they’re a loan that you issue to a company (or to the federal government) that is paid back to you with interest.
• Cash
  • The most liquid option, saving in cash tends to be the most secure way to keep your money. With the heavy safety net, comes a significantly less return rate Traditional savings accounts are seeing interest rates of a dismal 0.1%-1.5%, which does not give your money a chance to grow.

Determining the appropriate combination for you will draw on your age and risk tolerance. There are benefits and detractors for each option and the percentage you settle on should be something that fits with your values and will be best for your retirement lifestyle.

Finding Your Ideal Mix

Asset allocation is a concept that is geared toward making the most of the money you have. Financial experts have devised a simple formula to help you gauge the percentage of assets that should be placed in stocks and which should go to fixed-income assets.

The principle message here is that stocks offer the greatest possibility for return but they are inherently more volatile than bonds and cash savings. This is where your risk tolerance comes in. Remember - everyone has a unique tolerance for risk. Working with a professional advisor can help to determine what your risk tolerance is, and to assess what that means for your investing strategy.

Keep Risk In Mind

Would you be ok if your portfolio dropped by 50%? What percentage of your retirement income comes from other assets like Social Security or a pension fund? It is important to assess your level of dependence on each stream of income to help you figure out what risks you are willing to take and which you are not.

Investments of all kind whether stocks or fixed-income (bonds) come with risks. But you can find each of these options in a higher risk or lower risk column depending on the nature of it. This means that you can choose the investment strategy that best aligns with your risk tolerance. I’ll give you a few examples.

• Dividend vs. non-dividend stocks
  • Dividend stocks tend to be more mature and stable than their non-dividend counterparts. Non-dividend stocks are more unstable therefore carry higher risk and can procure a higher return.
• Bond options
  • There is a huge difference in security between a US Treasury bond and a high-profile corporate bond. Even bonds can have a huge range of risk and return.
    
    

Stay True To You

Your retirement is what you make it, and your investments are not separate from that. The assets you have groomed throughout your working life are there to serve you well when you retire. With a sound asset allocation strategy, you will be able to make the most of what you have.

A key point here is that asset allocation is a strategy, one that is subject to change. If you are unhappy with the progress of your assets, make a change! Doing your research and staying up-to-date on the state of your investment portfolio gives you control of your assets. As you change, whether through risk tolerance or general need, your investments can change with you.

Asset allocation can be a tricky process. If you would like to talk through some strategies that will work for you, give us a call!

​Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering Financial Planning, Accounting and Investment Advisory services to individuals, families, and businesses. 
 
Whether it's traveling, being at the beach, or at his family's ranch in Texas, Tony loves enjoying time with his family and friends. ​​