Making the shift from wealth accumulation to wealth preservation


By Randy Neumann

As time passes, priorities often change. As you approach retirement, your investment mindset may have to be modified. If you are in your 30s or 40s, the goal is often accumulation — investing and saving to grow your nest egg as large as possible for your retirement years. You have time on your side. If the stock market goes down, you have more time to recover. As you get older, you no longer have this luxury.

When you are older, the goal may change to wealth preservation, and the objective is to make the assets last through a combination of conservative investing, sensible cash flow, risk management and tax reduction.

If you’re younger than 40, you may be encouraged to invest for growth for two reasons. One, you probably have a very long time horizon until retirement, perhaps as long as 40 years! Two, numerous studies have shown that the stock market has historically outperformed (over the long run) fixed-rate investments and savings accounts. (Of course, past performance is no indication of future results.) Also, as your earnings increase, you can potentially defer greater and greater amounts of salary into retirement plans.

When people are in their 40s, they usually begin to approach their maximum earnings potential. This is when many portfolios start to shift toward a mix of growth-oriented and preservation- oriented investments. For many people, this shift toward asset preservation gets more pronounced as they get older; however, some growth investments usually remain in their portfolios because their retirement capital may have to last for another 30 or 40 years!

In retirement, they have to find an asset allocation that will provide a regular income stream, yet still provide the potential for growth. Are you still accumulating? Perhaps you started saving for retirement relatively late or maybe you had a financial setback or two. This is not unusual, as many people in their 50s or 60s are still in the accumulation phase out of necessity.

There are people in their 40s or 50s who have no retirement savings. Many are predisposed to “make up for lost time,” and adopt an aggressive investment strategy. This can be dangerous. People may be tempted to invest the bulk of their assets in a “hot” sector of the market, cross their fingers and hope for double-digit returns.

But as we have seen with the real estate market, what seems “hot” may turn cold, real fast. Diversification is just as important for late savers as it is for everyone else.

“Wealth preservation” is a broad term that can signify a number of financial steps. A good wealth preservation strategy addresses the things that have to be addressed for any mature couple, individual or maturing family.

It should outline how retirement plan savings will be reinvested and managed (asset allocation, investment objectives). It should establish a schedule of sensible income withdrawals. It should provide measures for tax efficiency (in investing) and tax reduction to potentially increase the after-tax return. It should also incorporate an estate plan to permit the tax-efficient transfer of assets to heirs and/or favorite causes. (Please be aware that diversification and asset allocation does not assure a profit and does not protect against loss in declining markets.)

It should NOT expose an individual, couple or family to dangerous levels of risk with the mission of obsessively pursuing the best possible stock market returns.

Is preserving wealth on your mind? If not, perhaps it should be, particularly if you are in your 40s, 50s, or older. Now might be the right time to review your financial plan and to shift your emphasis from wealth accumulation to wealth preservation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann, CFP® is a registered representative with and securities and insurance offered through LPL Financial. Member FINRA/SIPC. He can be reached at 600 East Crescent Avenue, Suite 104, Upper Saddle River, NJ 07458, 201-291-9000.

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