Investing: Safety Or Growth – Or Safety And Growth

June
02

Written by: Jon McGraw

Mike estimated he was 10 years from retirement, but he and his wife, Lori, wanted to make sure they were headed in the right direction with their investments to fund an active retirement lifestyle. Weighing on their minds was the 2008 market correction and the hit it delivered to their overall financial portfolio. While their investment accounts had gradually regained their value, Lori was very concerned a similar occurrence before or during retirement could disrupt their plans.

The challenge for Buttonwood Team was to take these concerns and quantify them into an overall investment strategy. After a couple of intense strategy meetings, we understood what Mike and Lori wanted their retirement lifestyle to look like. It became a matter of implementing a combined cash flow, tax, insurance and investment strategy; fine-tuned to their goals and attitude toward risk.

In this case, the couple felt it was important to provide both safety and growth during the 10-year window until retirement as well as post retirement years. While it may seem these are conflicting goals, the Buttonwood Team recommended strategy using a “bucket” approach.

The first bucket would contain “safe” investments such as money market funds, certificates of deposit and short term bonds. Upon retirement, this bucket provides the cash flow for daily expenses. The subsequent buckets would contain investments starting conservatively, such as bonds, moving to higher risk with categories such as dividend paying stocks, growth stocks, and alternative investments.  This strategy allows overall risk to be controlled by the amount of assets in each bucket and can be adjusted as milestones, such as retirement, become a reality.

Because Mike and Lori have a decade until retirement, and adequate current cash flow, their first bucket was de-emphasized with more of their investments allocated to the other buckets. Our Team will begin to load up the first bucket a few years before retirement by shifting some of their higher risk investments into more conservative options.

The “bucket approach” is something we find very useful in our role as “Family CFO.” It’s a valuable tool in not only managing cash flow and investments, but can play a role in tax and estate planning strategy, too.

If you would like to discuss how a “bucket strategy” could impact your financial life please contact John Jesperson to set a strategy appointment at 816-285-9000 or by clicking HERE.