How to Choose a Retirement Investment Strategy
As you enter retirement, you may be in a position where you are investing outside of your employer-sponsored retirement plan for the first time. This can often leave people feeling confused and overwhelmed.
Something that may be helpful is, to begin with understanding how to approach your retirement investment strategy. Financial author and academic Charles D. Ellis wrote in The Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds, there are three ways to succeed as an investor.
The first is intellectually difficult, the second is physically difficult and the third is emotionally difficult.
The Intellectually Difficult Approach to Investing
The intellectually difficult way is reserved for those with superior brainpower, and a deep understanding of the markets they are investing in. Think of people like Warren Buffet, Ray Dalio, or George Simons.
The Physically Difficult Approach to Investing
The physically difficult approach requires you to outwork your competition. This is the approach many people on Wall Street take. They are known for working extremely long hours trying to get an advantage over one another.
The Emotionally Difficult Approach to Investing
The emotionally difficult approach requires you to withstand the uncomfortable emotions you experience when investing. This discomfort can include the pain of missing out on an investment or the dread brought on by a bear market. Everyone’s tolerance for emotional difficulty is different and can change over time.
Managing an Emotionally Difficult Retirement Investment Strategy
Assuming you are not of superior intellect, nor do you want to spend your retirement working long hours on investing decisions, you are left with the emotionally difficult route.
In order to increase your likelihood of success, you need to improve your ability to withstand emotionally difficult times in the market. This can be done by creating a long-term investment strategy that is tied to your personal goals.
For example, a primary goal for those in retirement is to fund their expenses not covered by other retirement income. Depending on the amount of income you need, your portfolio will require a certain rate of return.
Typically, the greater rate of return you need to generate, the more risk, you must take. If you are not comfortable with a given level of potential risk you may need to adjust your goals downward.
After creating your long-term investment strategy, you must then execute it. When implementing your strategy, you will need to follow an investing process where you monitor, review, and adjust your portfolio based on your changing needs.
The Role a Financial Advisor Can Play
If you struggle with this, you can seek the support of a fiduciary financial advisor. An advisor can help you develop, optimize and implement an investment strategy suited to your needs in retirement.
They can also show you have this strategy integrates with an overarching retirement plan. Lastly, they can provide an additional layer of support when making investment decisions during uncertain market conditions when emotions are high.
A successful retirement investment strategy does not require great genius nor tremendous effort, but it does require you to stick with that strategy in good times and bad.
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