\u201cThe one thing\u201d is a reference to a line in the movie City Slickers.\u00a0Curly, played by Jack Palance, asks Billy Crystal\u2019s character if he knows the secret to life.\u00a0As they continue to ride their horses along the big-sky Colorado backdrop, Billy says \u201cno.\u201d\u00a0\u00a0Curly raises his index finger and says, \u201cOne thing,\u201d meaning if you stay true to that \u201cone thing,\u201d you\u2019ll have life figured out.<\/p>\n
When Billy asks what the one thing is, Curly tells him he needs to discover that for himself.<\/p>\n
While I don\u2019t have any existential insights about your personal \u201cone thing,\u201d I can provide some help identifying that one thing when it comes to an effective investment portfolio for retirement income.<\/p>\n
You need to identify the role your investment portfolio will have within the context of your overall retirement income framework.\u00a0Investing for retirement income is about aligning your entire asset base with your financial goals, not just your investment portfolio.\u00a0You can then identify what portion of your goals your portfolio will be responsible for.\u00a0As a general rule, you want to align your discretionary and legacy goals with your diversified portfolio and essential expenses with more reliable sources of income.<\/p>\n
This also provides insight to your asset allocation. Your retirement portfolio is an exercise in exposing your portfolio to the various dimensions of compensated risk factors across the investable universe.\u00a0We\u2019ll talk more about this down the road.<\/p>\n
But as you begin to learn about risk, you\u2019ll find that the \u201cone thing\u201d that will serve your portfolio well is your allocation of stocks and bonds.\u00a0Again, to echo Curly\u2019s advice, this is by far the most important decision you\u2019ll make about your investments.\u00a0Understanding this is your \u201cone thing.\u201d<\/p>\n
Your stocks and bonds do different things in your portfolio.\u00a0The purpose of bonds in your investment portfolio should be to mitigate the stock risk your exposing yourself to.<\/p>\n
We frequently see many investors mismanage their investment allocation because they lack this foundation.\u00a0For instance, they lose sight of the purpose of their bonds in their investment portfolio.\u00a0They slowly begin taking on riskier bonds in hopes of getting that extra yield for more \u201cretirement income.\u201d<\/p>\n
Over time, this will likely work against you during market downturns, because what you thought of as safe holdings, aren\u2019t as safe as you thought. So, you\u2019re stuck with bonds, which have lower returns, that don\u2019t provide the security you were looking for after all.\u00a0You\u2019re hit with a double whammy.<\/p>\n
We will discuss the importance of asset allocation further in future articles. Stay tuned.<\/p>\n
<\/p>\n
Adapted from an article by Bob French, CFA at Retirement Researcher.<\/p>\n","protected":false},"excerpt":{"rendered":"
Curly\u2019s Advice: The \u201cOne Thing\u201d \u201cThe one thing\u201d is a reference to a line in the movie City Slickers.\u00a0Curly, played by Jack Palance, asks Billy Crystal\u2019s character if he knows the secret to life.\u00a0As they continue to ride their horses along the big-sky Colorado backdrop, Billy says \u201cno.\u201d\u00a0\u00a0Curly raises his index finger and says, \u201cOne […]<\/p>\n","protected":false},"author":7,"featured_media":909,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"post_statement":"","post_description":"","post_cta":"","post_button":"Read More","post_button_url":"","footnotes":"","compliance_id":"","post_disclaimer":""},"categories":[14,19],"tags":[24],"yoast_head":"\n