Old Fashioned Values, Expert Knowledge, Genuine Understanding

Three types of money

The first type is rainy day money. When we are working and employed, we call this an emergency fund.  In retirement, however, it is more rainy day money.  This is money that you can go to in an emergency, is fully liquid and ideally, is not taxed upon withdrawal.  This money should be used when specific needs arise beyond your usual daily life.

Type number two is safe money. With safe money you have a guaranteed date in the future that the principal and interest is guaranteed back to you.  Yes, there are a lot of variables to consider like the backing of that guarantee (who is the company, corporation or government entity that guarantees that money), but as long as that entity exists, you are going to get your money back.  However, safe money doesn't mean it doesn't have any risk.  So, we need a plan to fight inflation because that's the biggest risk to your safe money.

A point that is often not considered is that a bond fund is not technically safe.  Why?  You never have a future date of guaranteed principal in a bond fund, and when interest rates rise, bond values go down.  So, bond funds should not be looked at as safe money in retirement because it is not something you can depend on for income purposes when you need that money.

The third type of money is risk money. This is money that can go up and down in value and is typically going to be stocks, mutual funds, and other securities that don't have guarantees of principal.  The best way to make a lot of money is to not lose a lot of money! It's important when we invest in risk money that we are focused on the long-term.  Not so much 20 years, but a minimum of five years or more.  It is essential.  That way we can be a true investor and not a speculator.

Finding the right balance

The balance between safe money and risk money will be determined by income need and risk tolerance.  It is critical to have a plan that fights inflation as it is the biggest risk to your safe money you live on.

The market during retirement

For retirees, Brogan Financial approaches risk with the following question:  What is the least amount of risk I have to take in order to meet my objectives? We need to take some risks because inflation is such a powerful opponent.  Over the first ten years of retirement in a normal inflationary economy, you need to increase your income 40% to 50% or you're losing money and that's in a normal inflationary environment.  In an overheated inflationary economy the need is even more dramatic.

Contact the Brogan Financial office at 865.862.6800 for an appointment about your investments.