There are many reasons for investing, but if you read my blogs or attend my presentations you know that I believe that the primary reason people should invest is to secure their financial future.
Securing your financial future can mean different things to different people. To me, it means that you have enough cash flow in retirement to not worry about running out of money before you die. One source of cash flow for many people might be having enough of an asset base to provide the necessary cash flow.
What each person considers “necessary” is subjective, and cash flow is comprised of many facets. Some of these are pensions, Social Security, annuities, perhaps cash flow from the sale of a business and then the cash flow from your investment portfolio, which would include your IRA, 401k and 403b accounts. I want to make one comment about Social Security and then discuss how much cash flow should come from your investment portfolio.
When you first become eligible for Social Security, if you do not have any other sources of cash flow, then you should start the distributions. Otherwise, I suggest waiting until you are age 70. For my reasons, check out my previous blog on the matter. Keep in mind that Social Security is a source that increases with inflation and will last your entire lifetime, i.e., you cannot outlive those distributions. If you are married, the plan should be for the rest of your and your spouse’s lives.
With regard to your investment portfolio, many people believe the purpose of investing is to grow your assets. Rather it should be to provide the cash flow you need once you are retired. Once you have a sufficient asset base that is invested to provide your necessary cash flow as well as protection of those investments, plus the potential for necessary growth to maintain your cash flow, you should adopt a low-risk strategy. Investing to grow your assets beyond this amount could place you at an excessive risk of losing some of these assets.
To repeat: Excessive risk is the attempt to grow your assets greater than you need them to be. At some stage in your life, your plans should be to not lose rather than to win.
Investing and providing for your financial security is confusing and complicated, but with the right information and a clear understanding of what you need and what you are doing to secure your needs, it can lead to a lifetime of financial security.
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