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Designing a Retirement Asset Allocation Strategy Part III: Growth

Designing a Retirement Asset Allocation Strategy Part III: Growth

How to Fill Your Second Bucket in Our ‘3 Bucket Safe Money Approach’

The following article features content adapted from the book Momma’s Secret Recipe for Retirement Success by Dan Ahmad, Jim Files, and Jack Canfield. Get your copy here!

At Peak Financial Freedom Group, we encourage you to get serious about your retirement security. We believe strongly in a comprehensive, written retirement income plan to tie everything about your money together, which we recommend doing with what we call the “3 Bucket Safe Money Approach.” If you’ve been reading our blog for a while now, you’ve seen articles about Bucket #1 and Bucket #2, where you allocate assets to retirement income and liquidity. Now, we’re going to discuss the importance of Bucket #3.

Bucket #3 is All About Growth

When you’ve already allocated assets to your first two buckets, it’s time to focus on setting yourself up for growth. For Bucket #3, we want to create the opportunity for potential growth, but we do not want to take excessive risks. We want to invest in the stock market for the opportunity for good returns, but we don’t want to subject assets to -50% or higher losses like what happened during the Technology Bubble between 2000 through 2002 and the Financial Crisis between 2007 through 2009.

Bucket #1 provides “certain income” that is guaranteed for as long as you live while Bucket #3 provides “maybe income” that is not guaranteed. This means that Bucket #3 must be managed for volatility and loss reduction. Bucket #3 should generally be liquid and available in a lump sum.

First of all, the assets you place in Bucket #3 cannot, and will not, be “naked in the stock market,” you will not “ride out all losses,” and you will not “subject these assets to unlimited risks.” Bucket #3 may invest in low-cost exchange-traded funds (ETFs) or index funds, be managed professionally at a low total fully-disclosed cost, focus on stopping large stock market losses, employ a “stop-loss” and/or other risk mitigation strategy, and be system driven and not affected by your emotions. There will be various fees associated with this type of asset management strategy. Make sure to get all fees disclosed to you in writing.


SEE ALSO: What Type of Retiree Are You?


Why Use a Stop-Loss Strategy?

Many people ask why we would use a “stop-loss” strategy because they heard you can’t time the market. It’s 100% correct that you can’t time the market. A stop-loss strategy does not time the market, it simply removes those assets from the stock market after the stock market shows a downward trend and suffers a specific loss. There is no market timing whatsoever, just a pre-determined, preset, level of loss acceptance, to avoid “riding the market down to the bottom.” As you’ve read many times in this book, now that you are retired, do you really want to continue to do the same things you’ve been doing, continue to heed your broker’s advice and “stay the course,” “ride out all market losses,” and “focus on the long term?” If you do this, all you will be doing is continuing to risk your retirement security by subjecting your assets to potentially large losses.

As an example, after suffering a -10% stock market loss, most retirees believe there is less risk in the stock market after the loss because they think there isn’t as much the stock market can go down by after the loss. Think of this as a metal spring. If you push a spring down it goes down far easier at the top than after it has been compressed a certain amount.

While this “compression phenomenon” is true with a metal spring, it is not accurate or applicable pertaining to the stock market, it is just the opposite. Analysis has shown that once the stock market drops -10%, there is a 56% probability the stock market will continue to go down at that point. If you have a greater than 50% chance you are going to lose money at any point in time, what should you do, leave your money in that investment? Probably not, you may want to get it out of that investment at that time. This type of platform has the goal of reducing the risk, the potential for loss, of the stock market.  This means you can still suffer a loss, but the goal is for the loss to be reduced.

Creating ‘Competitive’ Growth Rates for Your Portfolio

Bucket #3 goals are providing the opportunity for competitive growth rates from an asset that has less risk than the stock market. For Bucket #3, what does “competitive” mean? It means you may earn less than the stock market because you are taking less risk

These potential return goals are far short of the +19% the stock market earned, and there is no guarantee you will earn anything at all in this type of strategy. We believe, in retirement, the most prudent strategy is often to accept a lower potential rate of return with a significantly lower projected risk.


SEE ALSO: Use the Correct Process for Financial Success


Your Comprehensive Bucket Strategy

Bucket #1, Bucket #2, and Bucket #3 make up the conservative portion of your plan:

  • Bucket #1, the guaranteed lifetime income bucket, gives you complete principal protection against all stock market losses, provides you income guaranteed for life, offers the potential for competitive rates of return, and eliminates your fear of running out of money. Also knowing you will pay an average 1% in fees and you can’t take your lump sum out for a specific number of years without penalty.
  • Bucket #2, the liquidity and safety bucket, gives you complete principal protection against all stock market losses, full liquidity to your funds for any purpose, and the freedom to spend your money.
  • Bucket #3, the growth bucket, provides you liquidity of all funds, potential opportunity for growth, and potential risk reduction as compared to the stock market. Also knowing Bucket #3 carries the risk of principal loss and carries fees.

As you can see, the three buckets can be used to create a powerful plan for you.

How We Can Help

At Peak, we specialize in working with these conservative asset strategies. We’d like to help you worry less, enhance your retirement income security, and enjoy this phase of life you worked to hard to achieve. Please call us today to schedule an initial conversation.


This information is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. This information is not mean to be relied upon as actual financial or tax advice. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views at Peak Financial Freedom Group, LLC and its affiliates. None of this information is intended to give you specific tax, investment, real estate, legal, estate, or financial advice. The planning and ideas in this data are not suitable for all individuals or situations. Consult a qualified financial professional before making any investment decision.
All research information provided is public source material. This material may also include additional references to articles, news, commentary, opinions, viewpoints, analyses, and other information developed by Peak Financial Freedom Group and/or affiliated and/or unaffiliated third parties, which is subject to change at any time without notice. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Peak Financial Freedom Group and its affiliates are not responsible for errors or omissions in the material and do not necessarily approve of or endorsed the information provided. This information is provided “as is” and no party makes any representations or warranties of any kind either express or implied, with respect to this information. Peak Financial Freedom Group, LLC and its affiliates do not warrant the information provided to be correct, complete, accurate or timely, and is not responsible for any errors or omissions in the information or any investment decisions, damages, or other losses resulting from, or related to, use of said information. The ideas, thoughts, and strategies presented here are those of our management teams and provide an insight into our views on Peak Financial Freedom Group, LLC, and its affiliates. Every detail presented here is subject to change without notice at any time.
Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE:

All of the information presented here is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. None of the information presented is intended to give you specific tax, investment, real estate, legal, estate, or financial advice but rather to serve as an educational platform to deliver information. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views on Peak Financial Freedom Group, LLC. Every detail in this website is subject to change without notice. Seminar, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC.


2nd Opinion Package available to Qualified Retirees and Soon-To-Be-Retirees may include free consultations, a free retirement income plan, risk analysis, and fee analysis. In addition, a comprehensive written retirement income plan may be provided to those who complete the entire process. Qualified Retirees and Soon-To-Be Retirees must have a minimum of $1,000,000 of investible assets such as IRA’s, 401K’s from past employers, stocks, bonds, mutual funds, bank accounts, money markets, CD’s, etc., but DOES NOT include real estate, businesses, limited partnerships, 401K/retirement plans that can’t be moved to another plan, and other illiquid type assets.


All investments involve risk, can involve the loss of principal, and unless otherwise stated, are not guaranteed. Past performance is no indication of future performance and such information cannot be relied upon regarding future potential gains. Nothing is directly or indirectly guaranteed by this information. The planning and ideas presented herein are not suitable for all individuals or situations. Hypothetical examples are used to explain concepts and are not indicative of potential results you could receive; past performance is not a guarantee of future results; and results are not indicative of any particular investment or income tax situation; your results will be different and could be lower or higher. Consult your financial professional before making any investment decision. Insurance product features and benefits, such as guaranteed lifetime income riders, are subject to contract terms, limitations, fees, and the claims paying ability of the insurance company issuing the contract. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of any other asset including an annuity may have tax consequences, early withdrawal penalties, or other costs and penalties as a result of the sale or liquidation. Different assets can be complex and carry fees, costs, and surrender charges. If you place assets under management with Fiduciary Solutions
LLC, we are paid an advisory fee from Fiduciary Solutions LLC and if you purchase an annuity through us, we are paid commissions from an insurance company.


2019(1), 2020(2), 2021(3), and 2022(4) Five Star Professional Wealth Manager Award - Dan Ahmad and Jim Files have been nominated for and have won the 2019, 2020, 2021, and 2022 Five Star Wealth Manager Awards. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Once awarded, wealth managers may purchase additional profile ad space or promotional products. Award does not evaluate the quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Award winners represent an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria. For additional information on the Five Star award, including a complete list of the 10 objective selection criteria and their research/selection methodology, go to https://fivestarprofessional.com.


Investment advisory services are offered through Fiduciary Solutions, LLC, a California Registered Investment Advisor. Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA Insurance License #0N14013). Peak Financial Freedom Group LLC is a financial planning and umbrella marketing organization, which enables the provision of multiple financial services under one brand. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are affiliated entities with common ownership and control.


Jim Files is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD #1620449) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0F06511). Dan Ahmad is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1491561) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0732913).

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