When planning for their golden years, many people spend an exhaustive amount of time determining how much they will need in retirement and trying to accumulate a large nest egg. What often gets overlooked, however, is the importance of how assets are allocated.
Although accumulating as much as you can is imperative for your retirement, it is also important to have your money properly invested in assets that accurately reflect your risk tolerance and time horizon.
While there’s no simple formula that can determine the correct asset allocation for every individual, the Color of Money is a helpful way of categorizing your retirement assets. Depending on your unique needs and goals, this method can help you divide your assets into Red, Yellow and Green money.
If you have a long-term time horizon, it is more reasonable for you to have Red money, or investments with a return that isn’t guaranteed and may have varying levels of risk, like stocks or hedge funds. While there is opportunity for growth with these investments, putting all of your savings into common stocks isn’t the best idea if you have a short time horizon.
For those with a shorter time horizon, it may be smart to consider safer investments like government bonds, certificates of deposit (CDs), money market accounts, fixed annuities, etc. These are all examples of Green money, which are assets that are designed to have principal protection and provide safety. Although the potential is smaller with Green money as opposed to Red money, it doesn’t carry the same risks and can help provide a reliable income stream for your retirement years.
Finally, there is Yellow money, which can provide a sort of middle ground for those who would like to see growth in their assets without completely risking them all, as with Red money. Yellow money assets would allow you to buy stocks, index funds, mutual funds or bonds and invest wherever you choose – all implemented by a financial professional with a specific strategy in mind.
Determining the amount of risk that is right for you depends on your specific situation and begins with a thorough examination of your financial position. At American Financial Investments, we help you categorize your retirement assets based on your personal needs and goals using the Color of Money as a helpful visual illustration to show you the kind of money you have, where it is, and how you can best use it in the future.
It can be daunting to organize your assets, understand the color of your money and create an income and accumulation plan that will help you reach your retirement dreams – but you don’t have to do it alone. Working with the right financial professional can help you determine your comfort level with different types of risk and help you properly allocate your assets to achieve long-term success. FBN
By Ronald Stevenson and Barbara Clark Stevenson
Ronald F. Stevenson, Investment Advisor Representative and Barbara Clark Stevenson own American Financial Investments, LLC. They specialize in Wealth Management, Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. Advisory Supervises are offered through American Financial Investments, LLC. Insurance services and tax preparation and planning are offered through American Financial Security, LLC. The aforementioned are affiliated entities.
For more information, call 928-771-8368 or visit AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, AZ 86305