Am I Taking Too Much Risk?

Financial Advisor J. Allen Neuenschwander sheds light on the financial risks you could be taking, and are unaware of.

Houston, TX. – 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 J. Allen Neuenschwander 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 J. Allen Neuenschwander, Owner of Outlook Wealth Advisors, LLC.

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 Neuenschwander. “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.  And $80,000 + $16,000 gain only got us back to $96,000.  We need 25% just to get back to even, and we’ve also missed the opportunity of having a real net gain during that recovery period! 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 (in the simplest sense between stocks, bonds & cash) and diversification. However in today’s world cash in banks or money market funds pay almost nil, and in the last 2 major market declines, stocks & many types of bonds both declined together!

“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 Neuenschwander.

An old formula, with a new twist, may provide a greater level of safety.  The old rule of thumb was simply allocate your age to safe 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 safe 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 safety 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 J. Allen Neuenschwander can help, please visit www.outlookwealthadvisors.com.

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

About J. Allen Neuenschwander:

Allen created Outlook Wealth Advisors after a devastating family tragedy caused him to redirect his life toward helping people achieve financial security while eliminating unnecessary risk. Unlike many estate & financial planning firms, Outlook has a true fiduciary responsibility to take care of its clients’ interests first, not the firm’s.

Over the years, Allen has passed numerous exams to become a Chartered Life Underwriter (CLU) and Certified Financial Planner™. He has taught financial and retirement planning courses for several Houston area colleges and universities and for employee groups at several Fortune 100 companies. Allen has also served on the investment committee of the Houston Chapter of the Texas Society of CPAs, and on the Board of Directors of the Financial Planning Association of Houston.

A major focus of Allen’s practice is working with retired people and those who are about to retire. He has a CD, “How to Avoid Common Retirement Pitfalls,” that is currently available and he is in the process of writing a book. It was recently announced that Allen has been the prestigious 5 Star Wealth Manager Award and will be recognized in the September issue of Texas Monthly Magazine.

Investment Advisory Services offered through Global Financial Private Capital, LLC, an SEC registered Investment Advisor.  Securities offered through GF Investments Services, LLC with principal offices at 2080 Ringling Blvd, Sarasota, FL  34237. Member FINRA/SIPC. Comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products.  They do not refer in any way to securities or investment advisory products.  Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by Global Financial Private Capital or GF Investment Services.