If you are like most Americans, you plan to retire sometime in
the future. You may have a retirement account established through
your employer, or be placing a portion of your savings into
investment vehicles, hoping they will grow in value.
By Eric Heckman
If you are like most Americans, you plan to retire sometime in the future. You may have a retirement account established through your employer, or be placing a portion of your savings into investment vehicles, hoping they will grow in value.
Wherever you have placed your money, the smart investor should always be aware of his or her own particular “risk factor.”
In the personal investment world, ‘risk’ is defined as any possibility of loss, usually due to market volatility.
Age is certainly a major consideration. People in their 20s and early 30s tend to be aggressive because they have plenty of time to recover from a severe loss. I call this the “Reckless Cowboy” stage. People in their late 30s and early 40s are in the “Mature Cowboy” stage and tend to strike a better balance between aggressive and conservative choices. Folks in their late 40s and 50s feel that they still want to ride the rodeo, but with a little more caution. Lastly, there are the people in their 60s and beyond. These people have reached the “I’ll still attend the rodeo, but sitting in the bleachers is looking better every day” stage.
In working with clients, I employ six typical profiles that help most people determine their risk factor and retirement goals.
1. Aggressive Profile: Fits long-term savers who want high growth and do not need current income. With 5 percent in cash and the other 95 percent in stocks, these individuals find the substantial volatility as acceptable in exchange for long-term upside potential.
2. Moderately Aggressive: With 5 percent in cash, 15 percent in bonds and 80 percent in stocks, this profile fits long-term investors who want good growth potential, don’t need immediate income and are comfortable with some risk.
3. Moderate: This profile fits long-term investors who don’t need current income, but want reasonable growth potential. With 30 percent in bonds, 10 percent in cash and 60 percent in stock, it tolerates some market fluctuations, but is less risky than just the stock market.
4. Moderately Conservative: This fits those who do need current income, but also want stability and potential growth with 45 percent in bonds, 15 percent in cash and 40 percent in stocks.
5. Conservative: Investors who want income and long-term stability in place of increasing value. It calls for 55 percent in bonds, 25 percent in cash and 20 percent in stocks.
6. Short Term: These individuals typically need current income and a high degree of stability. It suggests 40 percent in short-term instruments and 60 percent in cash. Investors with very short time horizons (one to two years), and where preservation of capital and liquidity are the primary goals, should consider 100 percent money market accounts or a combination of both money market accounts and short-term certificates of deposit.
Note that these are general descriptions. A qualified financial professional can help you determine your individual profile and find the solutions that fit your particular situation.
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. You can contact him at 297-9800.
