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Your Real Investment Risk: Living Too Long (Only If You Shift Investment Gears)

As a 51-year-old, over the past year and a half, I have been to a handful of friends’ birthday parties, celebrating them reaching the historic half-century mark. At each one, I make the same toast… “Congratulations, you’ve reached the halfway mark.” And, of course, fueled by hours of imbibing the cocktail du jour, I get colorful responses that can be summed up with, “You’re nuts… no one is living to 100!” Hmm… But if I am not nuts, are we prepared to live 30, 40, or even 50 years in retirement?


Most people know I like to joke around. But when it comes to investing/finance, I usually play it pretty straight (except for some sarcasm here and there). So, look no further than the graphic to the right for proof that many of us will walk this planet much longer than we ever

dreamed.


If you’ve recently crossed the half-century mark as yours truly, train your eyes to the year 1970. If you are like me, the odds are you are living to 88. If you are like my wife, you should target the age of 91. Put yourself in the top 25%, and you are pushing near the century mark. Enter the top 10%, and you are likely to live to be known as a centenarian.


The odds are truly in your favor to live a long life. For most, this equates to at least a retirement of 30+ years. So, will you be prepared financially to live the dignified retirement you deserve? For most retirees, the answer is an overwhelming NO. Living too long and outliving their money will be their greatest retirement risk… but it doesn’t have to be.


In our opinion, retirees need tohave their portfolio invested to meet their specific goals. It shouldn’t be managed based on some outdated (or never “dated”) financial industry-accepted concept known as the 60/40 portfolio. Simply, this portfolio puts 60% of your assets into bonds (or other fixed-income instruments) and 40% in stocks.


The premise behind this concept is it will protect your money, producing some income while eeking out some growth. Most importantly, it won’t get destroyed in a market correction. Theoretically, allowing retirees to sleep well at night, knowing their assets will be there in the morning. Like most things, this will work… until it doesn’t.


With people living longer combined with (until recently) low-interest rates, even the most fervent backers of the 60/40 portfolio started to see the holes in this approach. The lackluster total returns of bonds will put you at risk of outliving your money or, at the very least, having to drastically modify your lifestyle later in life due to a lack of money. So, how about avoiding this situation by not modifying anything… 30 years earlier?

Most often, when you retire, everything is at its peak. Your portfolio balance is as high as it’s ever been. Your income is most likely at a career high. There’s more equity in your home than ever before. Well, you did something right to get to this point, right? You took advantage of life’s most precious asset… time. It takes time and effort to get to these levels, but with each passing year, the growth is even greater as the values are much higher. If this is the case (which it is) … why in the world are you going to shift gears with your investment approach?!?!


Until retirement, your investments were mostly in equities (stocks and mutual funds). If you are our client, 100% of your portfolio is in equities. As it is the greatest wealth creator available to most people, this is where you should be invested. And guess what? This is where you should stay invested (at least most of your portfolio), especially if you are deathly afraid of outliving your money… as we are.


The only shift you should make is reserving more space in our portfolio for dividend-paying stocks. These, typically, mature companies are the best of both worlds. They consistently pay growing dividends while seeing their stock continue to rise. With these at the core of your retirement portfolio, you will have the long-lasting, dignified retirement you deserve.


But what happens if the stock market corrects, you ask? Nothing. If you can lock in your income via dividends (mainly from mature companies), who cares what the stock market is doing on any given day? Your income comes from dividends, not stock price appreciation. The Coca-Cola Company started paying a dividend in 1967 and still does today. Nothing, and I mean nothing, has made them stop paying a dividend. And this goes for many mature companies throughout our great country.


We’ve never advocated for not having most of your portfolio in stocks. Their performance over time is unmatched. And that is the key… time. As the graphic alludes to, our retirement years will include plenty of time. So, if your income needs are met with dividends, you will have plenty of time to watch the stocks correct and advance, ultimately leaving you with an investment portfolio value you never dreamed of.


Lastly, retirement is just a moment; it’s not a seismic shift. We must continue to take advantage of what’s at our disposal… in this case, the great American Stock Market. If you do, the dignified retirement you deserve can be there for the taking.





Note: Nothing in this letter should be considered investment advice, research,

or an invitation to buy or sell any securities.


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