The answer to this fundamental question is what will allow you and your investment advisor to design the ideal portfolio for your retirement. While many financial institutions and advisors rely on ready-made portfolios based on risk tolerance, I believe there is a fundamental difference between an advisor asking you what you need versus telling you what they can offer. With my clients, I want to know what they are looking for and will always tailor a portfolio designed to achieve their specific financial objectives.
Here are a few key questions to address when designing a portfolio:
What Are You Trying To Achieve?
Do you need income? Is capital preservation or growth your top priority? Do you want to leave a legacy? In our industry, it’s accepted that the older you are, the more fixed income investments you should hold. For example, if you’re 80 years old, 80% of your portfolio should be in bonds, 20% in the market. I don’t subscribe to this approach. Age is certainly a consideration as is risk tolerance but your needs and objectives should dictate the assets held in your portfolio.
What’s Happening In The Market?
There is no ideal asset-class mix because the market is ever changing. You need an investment advisor who is keeping track of interest rates, can manage currency risk, is knowledgeable about global economies and has access to a wide range of financial products across all asset classes.
Is Your Advisor Accountable?
Predetermined portfolios are certainly efficient tools, but there is no accountability on the part of the advisor using them. I build each portfolio from scratch, which means I’m the guy you hug if everything goes well and the person you call out if there are problems. I think it’s important for an advisor to be able to explain the decisions they make and be accountable for them.
What’s Your Target?
You and your advisor should be setting targets for your investments and monitoring performance. When targets are reached, it’s time to re-evaluate and rebalance.
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read all articles in Allan Small's Worry Free Retirement Series ----------
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What Do You Want Your Money To Do For You In Retirement?
The Art Of Creating A Portfolio For Retirees
Estate Planning: Passing Wealth From One Generation To The Next
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