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Frazier Allen: Do Risk and Retirement Mix?

F&M Investment Services - Raymond JamesClarksville, TN – Adding more stocks to your income plan may help offset low interest rates and inflation.

We live in unusual times, with interest rates at historical lows but likely to rise in the not-too-distant future, stocks trading at what some consider elevated levels driven by a years-long bull market, and investors scouring the pronouncements of central banks for clues to what may happen next.

However, one thing remains unchanged – those in or near retirement still have to map out a prudent strategy for generating income in the years ahead.

Frazier Allen [1]

Frazier Allen

While a traditional approach relying primarily on bonds and other fixed income securities served those who retired during much of the past 30 years fairly well, different times call for different thinking.

Some researchers and investment professionals now recommend that retirees maintain a significant allocation to equities throughout retirement, perhaps even increasing that allocation as they age.

The case for stocking up on equities

The foremost worry of many retirees is that they might outlive their money, so any retirement income plan must squarely address that risk. Holding a higher proportion of equities, which offer the possibility of capital appreciation, may help offset the steady drain on retirement portfolios caused by withdrawals and inflation. In addition, be aware that bonds as a whole may decline in price if interest rates trend upward over the course of a long retirement.

Think ahead about volatility

Equities historically have been more volatile than bonds, so if you allocate more of your retirement portfolio to stocks, you have to be prepared to weather periods of volatility. It’s critical that you work closely with your advisor to invest in a portfolio that fits your risk tolerance so you are able to stay the course when the inevitable gyrations arrive.

Also, keep in mind that bonds can be volatile too, especially when interest rates rise. For balance, consider maintaining a cash reserve equal to several years’ worth of living expenses – you and your advisor can decide how much.

Consider all your income sources

Comparing income to your overall expenses will provide you with a framework for determining how your retirement portfolio should be allocated. You and your advisor may be able to estimate how your portfolio will react in certain hypothetical circumstances and make adjustments as needed.  

Next Steps

Past performance may not be indicative of future results. Asset allocation does not guarantee a profit nor protect against losses. Investing involves risk, including the possible loss of capital. There is no assurance any investment strategy will meet its goals or be profitable. Dividends are not guaranteed and will fluctuate.

Material prepared by Raymond James for use by its advisors. Raymond James is not affiliated with any companies mentioned in this material.

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