Balancing Risk and Return in Saving for Retirement

2015 December 2014 Finances Yann Kostic

By Yann Kostic from the December 2015 Edition

Investing always necessitates balancing risk and return, and that challenge becomes even greater as you near retirement: you have to invest aggressively enough to build a nest egg that can support you for the rest of your life, but also insulate yourself from market turbulence that could set you back years. How do you choose a mix of investments that will deliver comfortable returns while offering the downside protection you need?

There’s no right answer, as different investors will tolerate different trade-offs. But you may want to start by determining your actual risk tolerance: think seriously about how low the value of your nest egg can drop before you exit the stock market.

To do that, consider how different asset allocations would have performed from 2007 to 2009 (market high to market low). Without rebalancing, a portfolio of 70 percent stocks and 30 percent bonds would have lost around 40 percent; a portfolio of 50 percent stocks and 50 percent bonds, 26 percent; and one with 40 percent stocks and 60 percent bonds, 19 percent.

Once you’ve determined an appropriate asset allocation based on risk tolerance, you can move on to part two: developing a stock-bond mix that has a good chance of delivering the returns that will enable you to maintain your preretirement standard of living throughout your retirement. You can do this with a retirement income calculator.

Of course, if the portfolio you’re comfortable with in a market downturn doesn’t provide the growth you need, you’ll need to reevaluate. And this is where your advisor can be a great support.

Yann Kostic is an investment advisor (RIA) and money manager with Atlantis Wealth Management who specializes in retirees (or soon to be), self-reliant women and expats in Mexico. Atlantis is working with an international custodian, so firm clients are allowed to hold multiple currencies in a single account including Canadian & US dollars as well as Mexican Pesos. Yann is splitting is time between Central Florida, Lake Chapala and Manzanillo. Comments, questions or to request his newsletter, “News you can use” contact him at in mexico, (376) 106-1613 or in the US (321) 574-1521


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