Am I Taking Too Much Risk?

Financial Advisor Robert Russell sheds light on the financial risks you could be taking, and are unaware of.

Dayton, OH. – Retirees and those soon to be retired are struggling to figure out what amount of risk is really acceptable for them in these turbulent economic times.  Plus, the whole idea of diversification and risk management are proving to be more complex than originally thought.  If these are questions you have been struggling with, then Robert Russell may provide you with some simple straightforward guidance on how to navigate these tricky economic times.

“Financial loss associated with taking risk is often overlooked by folks who are exposed to financial markets,” said Robert Russell, President of Russell & Company.

Let’s start with “the math” and explain the realities of loss.

“As you can see, it takes MORE gain to recover from a loss than the original loss itself,” said Russell. “This seems illogical, so let’s walk through a simple illustration:

If you have $100,000 invested into a mutual fund and that fund experiences a 20% loss, the resulting value on your next statement from the mutual fund company will show an account value of $80,000.

So, will a 20% gain get you back to even?  No.  Let’s crunch the numbers:

$80,000 x 20% = $16,000

$80,000 + $16,000 gain = $96,000 ($4,000 LESS than your original investment)

As we get older, our time horizon gets less tolerant to market losses due to the amount of time it may take to get a significant double-digit return just to get back our own money.”

The best defense to market losses is often thought to be proper asset allocation and diversification.

“I agree that risk can be mitigated by where you put your money, but, often, diversification is done by buying multiple funds all exposed to the same market risk and really providing little cushion to the economic risks associated with investing in the market,” said Russell.

An old formula, with a new twist, may provide a greater level of security.  The old rule of thumb was simply allocate your age to principal protected savings vehicles like CDs, bank accounts and find insurance company products like cash value life insurance and/or annuities.

As an example, a 65-year old couple using this formula would put 65% of their money into these principal protected vehicles and allocate only 35% of their assets to risk.  So, the risk assets are calculated by taking 100 minus your age.

The new twist is what to do with the 35% you allocate to risk-based retirement funds.  Based on new findings, like those recently published by the Putnam Institute, about how much money should be at risk in the stock market, they concluded (as reported in MarketWatch July 11, 2011 article: Retirees Need Less Stocks, More Annuities) “Retirees should invest just 5% to 25% of their portfolio in stocks, or at least that’s the case for those whose primary goal is to minimize the risk of running out of money and sustaining their withdrawals.”

A possible way to build even greater security into your retirement planning would be to only put into stocks and stock mutual funds 100 minus your age.  If you add this to the tried and true =formula, the math on a $100,000 account for a 65-year old would look like this:

This formula appears to conform to the new research suggesting the reduction of overall market risk when future retirement income is the ultimate goal of your retirement planning.

For more information on this topic, or to learn how Robert Russell can help, please visit www.theirapros.com. 

For media inquiries only, please contact Jenn Horner at [email protected].

About Robert Russell:

In only nine short years, Robert Russell has amassed an impressive list of clients and credentials. He often contributes to CNBC, Fox Business, The Wall Street Journal, US News and World Report, and he also co-hosts “Retirement Rescue Radio” on 1290 AM and 95.7 FM WHIO.

Russell is an Investment Advisor Representative (IAR), 2nd generation wealth advisor and member of the Ed Slott Master Elite IRA Advisor Group. He was acknowledged as one of the top “40 Professionals under 40” by the Dayton Business Journal and was honored as a Five Star Wealth Manager – Best in Client Satisfaction by Cincinnati magazine.

Russell is also nearing completion of a book titled, “Retirement Held Hostage,” in which he outlines several of the strategies that have brought him to the top of his field.

Securities offered through Kalos Capital, Inc.,  Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA  30022,  (678) 356-1100.  Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.

Neither Kalos Capital, Inc. nor Kalos Management, Inc make any endorsements or opinions about the coursework required to become a member of Ed Slott’s Master Elite IRA Advisor Group and as such cannot guarantee the accuracy or completeness within.

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