Featured In The NHLRA Newsletter: How Should I be Invested?

At Granite Financial Partners the most frequent line of questioning we face when talking to plan participants is regarding allocation within the plan. Many who utilize their company’s 401(k) don’t fully understand how they are invested or what their alternatives are within the plan. There are so many different options available that it is not fair to expect the common investor to fully understand each of them. There is far more to consider, which necessitates professional help, but let’s establish a foundational level of understanding to instill some confidence.

Time Horizon

This is a term you will hear a lot in retirement planning. Your age and retirement date set the basis for how you will be invested. If you are young with no dreams of retiring in your 40’s, you have plenty of time to ride the ups and downs of market participation. Because of this long-term growth will be your priority. As you get closer to your desired retirement date, preservation becomes a greater priority. Late in the process some growth is still in play, but a market dip stands to do greater damage to your portfolio than it did before. If you don’t need the money anytime soon, you would want it to grow as much as possible over time. These portfolios typically would have a large portion invested in stocks and other equity devices. Conversely if you are approaching retirement more closely, a greater priority should be placed on investments that generate income to be spent in retirement. Things like bond funds and other debt related devices accomplish this with varying degrees of risk.

Risk Tolerance

The end goal is for your retirement benefit to be there when you need it, but how it gets there along the way has a lot to do with your personal preferences also. Some individuals are simply more tolerant to risk than others. Whether you need income or growth, as mentioned above, there are a multitude of different asset classes to choose from with varying degrees of risk. With greater risk comes greater potential returns, the complicated part is blending this with your time horizon. For example, a young person is looking for large long-term growth but what if they are uncomfortable with aggressive investments? A bond portfolio would satisfy their risk tolerance, but generate income rather than long term growth. A Large Cap Growth fund would be an equity investment, focused in large companies that tend to be more stable. Similarly, an older investor looking for more risk would seem counterintuitive, but an option like investment grade bonds could satisfy their needs.

As you can see there is such a vast world of investment possibilities that professional help is often recommended. Talk to your HR department about what resources are available to you. While it is only the very tip of the investment iceberg, this knowledge can help you at the very least know how to determine what you are looking for. At the end of the day saving in the wrong asset class is still better than not saving at all.

Top Questions You Should Be Asking Your Adviser

In this week’s blog, we will examine some of the most pointed questions we’ve been asked by clients. If any of these questions or their answers strike a chord, call us. We can schedule a meeting to alleviate your concerns and probably uncover additional questions you didn’t know you had.

  • How long do I need to work for my money to last?
  • What is a realistic withdrawal percentage from my portfolio in retirement?
  • When should I claim Social Security, and which option should I choose?
  • What can I do to plan for an extended care situation in retirement?
  • Now that I am retired, should my investment strategy change?
  • What will Medicare and Medicaid actually cover for me?
  • What is the most efficient way for me to leave something for my family?
  • How can I plan for my tax-deferred accounts and how will it affect my taxes?
  • When I retire, what is the best way for me to use my portfolio as disposable income?
  • Do I own too much of my company stock?
  • Should I take a cash balance or turn my funds into an annuity from my workplace retirement plan?
  • Will my plan still work if we have another recession?
  • How can I use my business as an asset for my retirement?

As you read through these questions, a few of them may elicit an emotional response, others may get you thinking about a similar concern you have with your plan. These are the questions we like to hear about as advisers. It is important that your adviser takes you beyond simply chasing returns, and works to structure your plan so that it accomplishes the future goals that are most important to you. Whether you hold the 5th or 6th ranked international bond fund is far less important that whether or not an international bond is the best way to accomplish the particular goal you have for that investment.