Investment strategy during your retirement years

During the early to mid 20^th century the word inflation was not part of the financial landscape.  However, today whether you are living in Jamaica or another part of our global village, inflation is quite evident.  This is one of the reasons why retirees continue to need an investment strategy.  The next reason is that there is enough evidence to indicate that retirees are the victims of most financial scams because of poor investment knowledge.  An active investment strategy should minimize the jeopardy of being engaged by a financial scam artist.

Where a retiree is not employed there has to be thought towards earning additional income that can keep pace with inflation.  Investing extra income that may be available usually satisfies this need.  But before one starts any investment it is wise to complete a risk profile analysis.  I can hear you saying that ‘I did that when I was working, so why should I do it now in retirement?’  The answer to this thought is that as a retiree your risk profile would have changed to low, medium or high and you will need to match your investment with your risk profile.  Additionally, your guaranteed lifetime income to meet your daily expenses may have changed.   If you visit www.milestoneslifestyle.com you can download a FREE risk profile analysis.

In real terms what is the meaning of low, medium and high-risk profiles?  Let’s look at each one:

Low risk profile: this is an indication that you can only invest in low risk investments such as bonds, Treasury bill (T’Bills), foreign currency investments, savings accounts at the bank, building society or credit union and any low risk low return investment.  Usually these types of investments provide for returns which are a little below the inflation rate and the risk of losing your capital is low.  Investments in this category are for those individuals who do not have additional income in excess of their guaranteed monthly income.

Medium risk profile: this means that you can take a little more risk than the low risk profile.  Hence, you may be able to invest in blue chip stocks, medium risk bonds and real estate.  These investments provide for higher returns than the low risk investments but they also have a higher risk of losing your principal or capital sum invested.  This could be detrimental to your mental health and if a retiree has any fear of loss and how it will impact on everyday income required to meet expenses, this is not for you.  However, if after reviewing your guaranteed monthly income and there’s enough to meet the month’s expenses and there’s surplus of say more than one month’s income, medium risk investments could be considered.

High-risk profile: this means that you have at least one year’s guaranteed income in excess of what you need and you have an appetite for the risks of loss associated with investment gains. You would therefore be looking at investing in Hedge fund, International Equities and FX Trading, which while volatile, can produce high returns. Retirees in this category usually have income from a family trust, which is in addition to their guaranteed retirement income.   The financial sector usually refers to these individuals as high net worth clients. We all know that investing in stocks provides can be high risk.  James Jorgenson in his book ‘It’s Never Too Late to Get Rich’ provides the following guideline for investing in stocks for persons over age 60: Invest 100 minus your age in the stock market.  This means that for a 70 year old investing in stocks there should be no more than 30% of your investment portfolio.  You can apply this to any class of investments and use it as a guide.

But be careful.  Regardless of what your risk profile summary reveals about your appetite for risk, at the end of the day you need to know yourself in terms of how traumatized you will be if you learn that there’s a loss with one of your investments.  Therefore, if you would have to be hospitalized as a result of the news of an investment loss, high-risk investments are not for your portfolio even if you could afford to do so.

The reason retirees invest is no different from employed persons: to earn additional income that can keep pace with inflation and to contribute to the vibrancy of the economy.  One of the requirements of investing is keeping records.  You will need to have an organized method for keeping records of your investments.  Why?  In your retirement years you are not only investing for yourself but also for your heirs: children, grandchildren, other relatives.  Therefore, you must have in place a valid Will.  Another requirement is to know the rate of inflation and the tax rate, if any, which is applicable to the earnings on your investment.  Whether you are low, medium or high risk you should ensure that your investment returns are at or above inflation. 

Now that you have some fundamentals to work with in designing your strategy, the final step is writing down your goals and objectives for your investments.  This should include when and how you plan to draw down your earnings on your investment.  This is where you get the thrill of investing: don’t think that as a retiree you should deny yourself of those happy thrilling moments and investment returns can be one of them.  Writing down your investment strategy will provide knowledge for your next generation. 

When you have your written strategy this provides you with an approach of how to respond to requests for investing your money.  Your questions should be: what is the risk profile of the investment – low, medium or high; what is the investment return; is the request from a reputable organization; what are the tax rates on the investment returns and therefore the net gain on the investment.   If you were encouraged to invest in a medium or high-risk investment, can you survive the news of a loss of your capital?  If the answer is ‘no’, don’t invest in medium or high risk even if you can afford to do so.  Remember, you always have the right to cash out a high-risk investment and move to a low risk investment.  Greed usually leads to losses.  Be realistic about your gains.

Investing in retirement should be enjoyable since you should have more time to track the progress of your investment gains and losses.  Go online and learn more about investing.  Buy books and attend local seminars and online webinars.  Knowledge is power.  Know your risk profile and invest for yourself and your heirs.  The result is additional income for yourself and a rich legacy for your heirs.  Enjoy.