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2 Important Goals for Many Retirement Portfolios

Published by Motley Fool Wealth Management on Thu, Jul 29, 2021

Everyone is at a different stage in his/her life. But for those nearing the end of their working years, transitioning from employment to retirement is often challenging. Although financial independence or retirement is “The Goal”—we look forward to it; we celebrate it—the reality is that it can be a difficult change.

Our personal identity is often wrapped into our professional identity. What we do can become a big part of how we see ourselves. We build communities in the groups we work in and tend to spend large chunks of our lives becoming experts in our field. Leaving that behind for a week full of Saturdays can be scary in its own right. And the financial shift can be just as daunting.

A shifting mindset

You’ve likely spent most of your professional life building a nest egg. But after the final paycheck gets cashed, your investing goals should shift to accommodate your new reality. You probably no longer have one singular goal of building a nest egg, but now two.

Goal 1: Protect the money you need in the short term from the volatility of the market.

Goal 2: Continue to grow your long-term wealth so that inflation doesn’t erode your buying power.

The question is how do you best protect from volatility and grow long-term wealth?

Invest to grow wealth

Many individuals invest primarily in stocks and bonds when they aim to accumulate wealth. But historically, these two asset classes have delivered vastly different returns and risk levels.

Over long periods of time, stocks have performed better than bonds. For example, the U.S. stock market has gone up in 31 out of the last 41 years. But they’re also more volatile. In any single year, the U.S. stock market can swing from being up 30% or more to down nearly 50%.

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Are you able, and willing, to withstand the potential whiplash of the stock market?

Thinking back to how you reacted during the volatility of 2020 can offer valuable insight. The level of angst (or lack thereof), the type of worry, and the actions you took are worth noting, and depending on them, could warrant an adjustment to how you have allocated your assets.

Because how you react matters. During market downturns, you want to avoid pulling from your portfolio while stocks are in a meaningful drawdown. So, having a safe pool of funds (whether it be cash, money market mutual funds, or relatively lower risk bonds)—that aren’t as affected when stocks decline—allows you the time to wait out a bad market and ideally not have to sell a stock you love at a price you hate.

Freedom to reach for your goals

By protecting your short-term needs, you’ll have the freedom to be a long-term-minded investor with the rest of your portfolio. Sudden drops may be less jarring. And you can keep the desired amount of funds allocated towards assets that you believe will lead to better returns (within your risk tolerance, of course).

Disclosures

* Certain of our Personal Portfolio strategies may hold FANG stocks. The mention of specific holdings does not constitute a recommendation by Motley Fool Wealth Management (“MFWM”). Rather, the discussion of these companies is solely intended highlight current market trends.

This discussion is intended solely for the purpose of providing insight into how we are managing client portfolios in the current market environment and why we believe our investment philosophy and strategies are well-equipped to hold-up.

This discussion is intended for informational purposes only, and should not be relied upon as personalized recommendations, investment advice or financial planning advice. Should you need personal financial advice, we encourage you to speak with a financial professional. Much of this discussion will reflect our opinions, estimates and projections as of the date of this discussion, which are subject to change without notice. Of course, we cannot represent that any opinion, estimate or projection will be realized. In addition, charts used in the discussion were prepared by third parties or by using third party data. We believe that this data is reliable; however, we cannot guarantee this data’s currency, accuracy, timeliness, completeness or fitness for any particular purpose.

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