Principle and Guideline #1: What NOT to Invest

If you’ve been reading all of my recent issues of The Strategy of the Week and you’ve been following each step in The Relaxing Retirement Formula™, you know just how critically important it is to determine the investment rate of return you need to earn in your retirement years (as opposed to the rate of return you’d “like” to earn).

Once you’ve calculated the investment rate of return you must earn in order for your Retirement Bucket to remain full in spite of withdrawals you make each year to support your desired lifestyle, the next question is where do you position your investments to produce that long term rate of return you need?

To help you determine the correct answer for yourself, there are FOUR principles and guidelines I’d recommend for you.

Today, I’d like to begin with Principle and Guideline #1:

How Much and When?

Investing properly in your retirement years begins with first knowing what NOT to invest.

This may sound rather odd, but think about it.

Because you will be withdrawing money from your Retirement Bucket™ each month or each year, you can’t afford to have the funds you’ll withdraw subject to any market volatility.

Why take the risk when you don’t have the time to recover?

Investing is about exposing your money to capital markets with the goal of ending up with more than you exposed at later point in the future so you maintain your purchasing power.

However, in order to do that, it’s quite possible that capital markets may not respond the way you want in the short run and prices may temporarily fall.

If they fall right before you need to withdraw funds to live on, you’ve just suffered investing sin: you’ve sold LOW!

Or, stated more accurately: you’ve put yourself in a position where you were forced to “sell low”.

So, as I’ve stated emphatically over the last few weeks, the first principle I recommend is getting crystal clear on the amount of money you need to withdraw from your investments and “when” you’re going to need to withdraw those funds.

Those funds will then be strategically positioned in interest bearing instruments completely free of stock or interest rate volatility.

Psychologically, this is difficult for some people to do who have never been in a position of “living” on the money they’ve accumulated.

They feel as though they need to squeeze out every ounce of investment return they can on every dollar they have.

That’s admirable for some, but extremely dangerous in your retirement years.

As difficult as it may seem at first, it’s critical that you get comfortable with the fact that not every dollar you own will be invested earning “market” rates of return.

Instead, you’re going to have different pockets of money which all have different goals, and thus different investment vehicles and asset classes in order to support them.

You’re not going to ask every investment to get on the high speed express train.

Stay tuned for Principle and Guideline #2 coming up soon.

Committed To Your Relaxing Retirement,

Jack Phelps

The Retirement Coach

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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)