Whether you are a golfer or an investor, we can all agree that you want to avoid hazards and stay on course. It's all about staying in the game as opposed to being out for the count.
To help put this conversation in perspective PGA Champion Tom Lehman said it best, "I don't take risks I don't have to take. I don't want to do something that will knock me out of the tournament with one bad swing."
Investors are facing more hazards when it comes to investing. While some retirees have built solid nest eggs, almost half of senior citizens may die nearly broke according to a study from James Poterba of Massachusetts Institute of Technology, Steven Venti of Dartmouth College and David A. Wise of Harvard University. The study found that, 46 percent of seniors are unlikely to withstand financial emergencies and die with less than $10,000 in assets.
According to an AARP study, Americans over 75 lost nearly one-third of their investment assets from 2007 to 2010. Even more disturbing is this group is adding on debt. Almost 22 percent of Americans 75 and older today carry credit card debt, a sharp increase from 2007, when the percentage was 18.8 percent.
For the past 50 years, the main focus of many clients' portfolios has been an equity/bond allocation. Thanks to Modern Portfolio Theory investors believed they could maximize returns for a given amount of risk. This equity/bond allocation may have worked in the past. But the economic realities of the most recent decade as well as the current environment present new hazards. Retired investors and larger accounts now recognize they must maintain a higher standard of preservation of principal to protect their wealth so they can stay on course.
Hitting the fairway
Golfers often have to choose between accuracy and distance on their shots. This is similar to how investors have to choose between risk and reward. Just as a conservative shot may not provide the distance that is needed, a 100 percent bond portfolio may carry more risk than investors realize. On the other hand, the more aggressive the shot, the less accurate it may be. And with investing, a 100 percent equity portfolio can have higher returns, but also has more risk.
Ask better questions. Get better answers.
Ask your financial advisor if there other investment options that are suitable for you. You want to know what might be appropriate for a portion of your assets that may provide more balance by providing more accuracy and added distance. In life it's not so much about winning or losing. It's all about being able to stay in the game and maintain the ability to play again if you choose.
John Grace is president of Investor's Advantage Corp. in Westlake Village. He is a registered principal of National Planning Corp and a master certified and charter member of HS Dent Advisor's Network.
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