#176 - The Role of Asset Allocation in Retirement Planning

“Learn the rules like a pro so you can break them like an artist” (Pablo Picasso). When I was taking a math refresher course for my certification, I had to memorize and practice calculating investment specific formulas. I have never had to use that skill again. But it did serve a purpose in giving me a greater appreciation for the rules as well as an understanding of where those rules are useful and where they are not. It’s important to understand the rules. In this episode on the role of asset allocation in retirement, I’ll talk about how we also need to break some of the rules to serve us in creating a great life.

Why is asset allocation what everyone uses if it doesn’t really work 100% for retirement?

Asset allocation is focused on maximizing return for a given level of risk. It is not tied to your retirement goals or your life. So why does almost everyone use asset allocation in retirement planning? On this episode, I’ll explain how asset allocation works, its benefits, and its downsides. Now that we’re not dealing with accumulation of assets but are starting to deal with decumulation of assets (retirement), we are starting to see that asset allocation may not be the entire answer. That doesn’t mean we throw it out. Listen to today’s podcast to find out what I do to balance it with more flexibility.

Tie your investment strategy to the goals that you want to achieve

Asset allocation builds a solid foundation for making better investment decisions. But you also need to have an investment strategy that is tied to the goals you want to achieve during the retirement (decumulation) stage. On this episode, I help you understand the need for more than just asset allocation in retirement planning. Listen in to hear how I implement portfolios with clients as they are entering and in retirement.

The “Fixed and Flexible” approach to retirement investing

The way that I have come to manage assets with clients is what I call “Fixed and Flexible.” It starts with fixed allocation as a foundation and then adds actively managed investment vehicles for more flexibility. On this episode, I describe how to choose where you want to be in the “river” of capital markets, and I clarify the difference between actively managed vehicles that are flexible and those that are not. Listen in to learn how to develop an approach that has both stability and flexibility.

Evaluate your investment types according to your retirement goals

In the next seven days look at each of your managers, ETF’s, mutual funds, whatever it is you own and identify what type of investment mandate they have. Are they passive, active, or flexible managers? Why do you have these different types and these different portions and how does that relate to what you are trying to achieve for your family? Listen to today’s podcast to get the information you need to ask and answer these important questions about your investment portfolio.

 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

• [0:27] Why learn the formulas?
• [4:03] How do we break some of these rules to serve us in creating a great life?
• [4:20] Disclaimer.

 

HOT TOPIC SEGMENT

• [5:05] Why is asset allocation what everyone uses if it doesn’t really work 100% for retirement?
• [8:56] What are the benefits of the asset allocation model?

PRACTICAL PLANNING SEGMENT

• [14:03] Asset allocation is a sound framework for investment decisions, but not the entire solution.
• [15:52] The “Fixed and Flexible” approach - asset allocation.
• [21:56] The “Fixed and Flexible” approach - Actively managed investment vehicles.

TODAY’S SMART SPRINT SEGMENT

• [32:46] Identify what types of investment mandates your funds have.

THE HAPPY LAB SEGMENT

• [34:04] Scott & Jeannine Fitzgerald. Children’s Book - Buddy Pegs podcast. Kickstarter for new book Buddy Pegs Taking the Lead.

RESOURCES MENTIONED IN THIS EPISODE

Buddy Pegs Taking the Lead, Scott and Jannine Fitzgerald (Kickstarter)

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