21st Century Risk Analysis....All investors have at one time or another been asked the question, “what is your risk tolerance?” But what does “risk tolerance” actually mean? And can a list of questions adequately answer such an important question for everyone’s portfolio?
Despite all of our advances in technology, the world still invests the vast majority of its financial assets using a combination of gut instincts, hunches, emotionally-driven decisions and “what we learned in college.”
As a result, when markets pull back, investors typically pull the plug—locking in horrible losses, sitting out the recovery and waiting until the market “feels safe” again to reinvest at the top, and repeat the cycle.
At GNZ Financial, we use Riskalyze to capture a quantitative measurement of client risk tolerance, and use that data to meet client expectations. Riskalyze’s core technology is built on the academic framework that won the Nobel Prize for Economics in 2002. This technology allows Riskalyze to do the following:
Quantitatively Pinpoint Risk.
Eliminate the stereotypes that have made risk tolerance useless. We use leading scientific theory to objectively pinpoint an investor’s Risk Number.
Analyze Portfolio Risk
Our powerful portfolio analytics engine calculates the Risk Number of each portfolio to match it with investor risk preference. Use powerful risk analytics to compare prospect risk preference with their actual risk.
Stress test portfolios for a variety of stock and bond market scenarios. Revisit an interest rate jump or the 2008 market crash.
A case can be made that retirement investing is more important today than at any time in history. Why? Today’s retiree is projected to live longer than any previous generation in the history of the world. Better medical care, improved nutrition and reduced manual labor are some of the many reasons for this increase in longevity. The men and women of the 21st century could live years, even as much as a decade more than their predecessors.
This is one of the wonderful results of the modern world and should bring us great joy and satisfaction. After all, increased longevity means more years to enjoy life, more opportunities to do the things we always wanted to do and see the things we always wanted to see.
However, the joy of living longer may be tempered when you contemplate what that might mean for your retirement savings. Living longer means your money needs to last longer than ever before.
At GNZ Financial, we work to help you get the most from your social security benefits. We also recognize that maximizing social security benefits work best when they are integrated in a complete financial plan. A thorough review of your entire financial picture—existing pensions,
your individual savings plans, living expenses and “bucket list” desires—is essential to work toward your retirement goals.
Plan First, Invest Second....Many of the advisors working with retirees today fail to recognize the transition from accumulation to distribution in a financial plan. Their focus remains strictly on asset allocation and growing the nest egg.
At GNZ Financial, our knowledge and experience recognizes the differences between climbing “up the mountain” of accumulation vs. navigating the trip “down the mountain” with the many additional risks that incurs. We educate our clients on “asset designation,” a process that grows AND preserves the post-retirement nest egg. Our approach includes ideas like some of the ones listed below:
Sequence of Returns:
As you build your nest egg for retirement, it really does not matter what order total returns are credited to your account. When you accumulate dollars, year one is the same as year 30; they all simply add up to get a total investment amount.
In retirement however, the order that returns occur can be the difference between your money growing or disappearing. If you are subject to losses early in your retirement, the negative effect on your portfolio is far more severe than if those losses occur later in your retirement years. At GNZ Financial, we help you develop a portfolio that recognizes the importance of Sequence of Returns on a retirement portfolio.
The Cycle of Market Emotions:
Conventional wisdom tells us that an educated, well-informed investor makes intelligent choices and is prudent in his investment thinking. However, the historical record of investors putting that knowledge to use successfully in their portfolios is not as easy as it sounds.
Why? Because human beings are very emotional creatures. Regardless of how knowledgeable an investor is, emotional behavior is still the overriding factor in investment decision making.
Therefore, we believe the key to investing is to take emotions out of the equation. At GNZ Financial, we help our clients design a specific, logical approach to investing, devoid of emotions.
Effective Distribution income plans in retirement:
Retirees too often never consider that in post-retirement, investing is now a part of a much greater distribution plan. It’s not enough to keep investments the same and simply start to withdraw arbitrary amounts like 4% to live on. The market crashes of 2000-02 and 2008 showed this strategy to be especially harmful for people who had just retired.
Recent studies have shown that the economic and market conditions of the 21st century made choosing an arbitrary number like 4% for withdrawals was disastrous! More than half of the retirees using the 4% rule for post-retirement distributions ran out of money in the first 15 years of retirement! Despite these startling statistics, the financial industry as a whole still uses this myth for today’s retirees.
At GNZ Financial, we recognize that it is foolish to establish a specific withdrawal percentage without first answering a number of questions specific to each retiree. The answers from these questions, as well as an analysis of the economic and market conditions a retiree enters in retirement, are essential for your retirement plan. Our goal is to effectively provide a “paycheck for life” for retirees, regardless of how the future unfolds.
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