Building a well-structured portfolio is a crucial step for most investors, tailored to their unique investment objectives, risk tolerance, and time horizon. By leveraging these inputs and employing sophisticated portfolio-optimization calculations, investors can gain confidence in owning a diversified portfolio that aligns with their long-term goals. This approach provides a solid foundation for pursuing financial success and stability.
However, as a retiree, there is an additional factor to consider when constructing your portfolio—your preferred lifestyle in retirement. This consideration becomes particularly relevant when contemplating specific endeavors like starting a business or embarking on extended periods of travel.
Should you choose to venture into starting a business using your retirement funds, it's important to acknowledge the inherent risks involved. In this case, it may be prudent to adjust the risk level of your investment portfolio to compensate for the additional risk associated with the new business venture. Given that a new business often takes time to generate income, it would be wise to orient your portfolio towards generating current income to support you until the business becomes profitable.
On the other hand, if you plan to travel extensively during retirement, it's worth considering the benefits of utilizing a professional money manager for your retirement savings. This is especially true if your travel plans will disconnect you from current events and limit your ability to actively manage a portfolio of individual securities. Entrusting your retirement savings to a professional money manager can ensure your portfolio is expertly handled, enabling you to fully enjoy your travel experiences.
When contemplating retirement income strategies, it is important to acknowledge the impact of market volatility. Sustaining a reliable income stream becomes challenging when market conditions cause the value of your portfolio to decline. While there may be some opportunity cost involved, it's worthwhile to explore products and strategies that offer protection against drawing down on savings during market downturns. This proactive approach can safeguard your retirement income and minimize the risk of failed income strategies.
It is essential to recognize that diversification and portfolio optimization calculations are valuable approaches for managing investment risk. However, they do not eliminate the risk of loss should security prices decline. Furthermore, it is important to remember that market conditions cause fluctuations in the return and principal value of securities. When securities are sold, they may be worth more or less than their original cost. Past performance does not guarantee future results, and it is important to note that individuals cannot directly invest in an index.