Matching Strategy with Preference

In my last article I detailed how it helps to understand your preference between commitment and optionality.

Instead of a one size fits all approach, we should understand the range of preferences that exists among those planning to retire. How comfortable are they with commitment? How confident are they that the market can provide their income in retirement?

This time, we’ll look at confidence in the markets vs. those with a safety-first mindset.

There are some people that are comfortable with the idea that historically, markets have grown at a certain rate, they will continue to do so, and investors can take out a certain amount each year.

This a probability or total return approach. This person sees their financial picture in one big lump sum. They view success as having enough money in their retirement and investment accounts to safely withdrawal enough to meet their expenses.

On the other side is the safety-first approach. These people are more comfortable knowing their basic expenses are met without market risk. In fact, if these individuals have their basic needs met with guaranteed income, they are more likely to take risk in their other investments.

The safety-first retirees could also see their retirement in segments. For example, their next 3 years of income are free of market risk. Years 4-10 have some risk and years 10+ have the most market risk.

To sum it up, there are 4 quadrants you could fall in.

  • Total Return – Comfortable with Markets and valuing optionality
  • Risk Wrap – Comfortable with Markets and valuing commitment
  • Time Segmentation – Valuing Safety and valuing optionality
  • Flooring – Valuing safety and valuing commitment

When someone’s plan is design specifically for their preferences, they are more likely to feel confident, stick to the plan, and have better results.

If you want to know more about what’s going on with the markets today, you won’t want to miss our upcoming market update call.

Andrew Eppes, CFP®, RICP®

Andrew Eppes is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. Nexus Advisors, LLC is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 14241 Dallas Parkway Suite 1200 Dallas, TX 75254 972-348-6300. CRN202609-4970616.

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