Risk vs. Reward: Finding the Right Asset Balance for You

There are inherent risks in investing (you can’t control the market) but there are potential payoffs that help people tolerate that risk (like funding retirement). To better understand your own tolerance for risk, you need to first get the gist of asset allocation.  Asset allocation is a technique used to spread your investment dollars across different asset classes.  Stocks, bonds, and cash or cash alternatives, among others, are generally the most common components of an asset allocation strategy. 

Determining risk tolerance

Deciding on an appropriate allocation is an important exercise because it may be the most important investment decision you make due to the impact it can have on your overall return.  Your financial goals, time frame and personal resources all contribute to the equation. A risk profile questionnaire is a widely accepted method to help advisors and investors make asset allocation decisions.  

However, there are two significant limitations to relying solely on a risk questionnaire to make the asset allocation decision.  First, the way people think about risk is not stable and very often varies with market conditions.  Behavioral science research tells us that when the market goes up, the pain of past plunges typically fades as investors feel they can accept more risk.  The dynamic reverses when markets correct or go down.  Suddenly, the market elicits fear in the hearts of investors and tolerance for risk diminishes.

The second limitation with risk questionnaires is they don’t measure an individual’s need to take risk.  The purpose of an investment portfolio is to support the financial planning objectives or desired lifestyle. The plan will articulate the why as well as the how.  It helps answer questions like, “So, can I retire?” or, “Do I have enough to feel confident?”  The specific goals and time frames are the determinants of how much risk to take, even if there is a willingness to take on additional risk.

Committing to an asset allocation

Picking an asset allocation is important, but committing to it is even more important; especially in light of our changing attitudes about risk and reward.  Don't hesitate to get professional help if you need it. And be sure to periodically review your portfolio to ensure that your chosen mix of investments continues to serve your investment needs as your circumstances change over time.

Laurie Renchik, CFP®, MBA is a Lead Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Asset allocation does not ensure a profit or guarantee against a loss.

Three Skills to Help Women Become More Confident Investors

Many of my time-stressed female friends, colleagues and clients want to know how to create higher quality work/life balance. Launching meaningful careers, enjoying our families and creating financial confidence are outcomes we work hard to achieve.  At a time when women make up about half of the workforce, and control more than 50% of the wealth in the United States, research shows the financially savvy women have not achieved a level of investing confidence that goes hand in hand with greater wealth.

As a financial planner I work with women who are pioneers in their given career, possess personal confidence in creating wealth, and have strong savings values. However, these characteristics don’t necessarily translate from the office to their personal lives. But personal financial confidence is what gives you the opportunity to grow your savings and to build a solid foundation in retirement.

How to be a Confident Investor

Are you a confident investor?  If you are less than confident, it doesn’t mean you are stuck on that path.  Nothing could be further from the truth.  The reality is that your confidence can be strengthened with a few fundamental moves.

1. Create a financial plan.  This plan should not be viewed as a one-time event; rather a flexible and adaptive vision that you aspire to much like forging a career path that works for you throughout the different phases of your life.

2. Although it may seem counterintuitive, pay less attention to the markets and more to yourself and your financial goals.  Emotional reactions to things we can’t control often cause us the most trouble.  Refer back to your financial plan if your confidence in your investing ability begins to wane in light of current events.

3. Re-prioritize when necessary.   Changes can happen to take us off course in all aspects of life.  When change happens remember that cookie cutter advice doesn’t apply.  Look at your own life and evaluate what you need now and down the road.  Much like a mentor provides objectivity and perspective that can lead to good career decisions, share your current financial challenges with an advisor and address the worries proactively and with confidence.  

Why not leverage what you already have to create a financial plan and investing confidence that keeps you in the driver’s seat through all phases of your life?

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investing involves risk and investors may incur a profit or a loss.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making an investment.  Please consult with your financial advisor about your individual situation.

What Women can do to Create more Retirement Confidence

 Spending a weekend with girlfriends I have known since high school is a can’t-miss opportunity that rolls around once a year. Not only do I eagerly anticipate this get-together, this year it gave me a chance to not only laugh and commiserate with my girlfriends, but to also share some important knowledge on a topic that women don’t talk about enough … money. Women should have more open, meaningful conversations that focus not just on financial assets, budgets and credit scores, but also include stories about value and worth that are created by our individual experiences, communities, family, friends, career and legacies.

The financial risks that women run are distinct from men because of real cultural, psychological and biological differences. Women live longer, earn less and do not have complete control over either of these factors. Combine that with a general aversion to investment risk, and females (my friends included) can find themselves questioning how they are going to achieve financial confidence in retirement. 

Here are 3 conversation starters you might use next time you're with your girlfriends:

• How can we pursue human capital potential during all life stages?
• How can we maximize our workplace salary and benefits?
• Would we continue to work past retirement age if we are still healthy and able?

Every weekend isn’t a girlfriends get-away, so these topics aren’t for the back-burner. Don’t you want those in your circle of friends to realize full potential in the workplace, negotiate a competitive salary and benefits package, and choose a unique and custom pathway to retirement? If so, maybe its time to get a meaningful girls weekend on the books and get ready for it by talking with your financial advisor about all these approaches and how they can work for you.

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Ladies – Don’t be left out of the Retirement Income Discussion

 We know that statistically women outlive men.  By age 85, there are approximately five women alive for every three men.  By age 95, the ratio of women to men doubles.  (Source: 2010 U.S. Census Bureau).  We also know that income disparities over time can have significant implications on the amount women are able to save for retirement.  Ultimately this means women need to fund a longer retirement with fewer financial resources.  

To help frame the retirement income decisions women have to make when approaching retirement, use the following suggestions as general guidelines:

• Establishing a target age is important because when you retire will affect how much you need to save.  For example, if you retire early at age 55 the number of years you have to save is lessened and the number of years that you will be living off retirement savings is longer.
• Medicare generally doesn’t start until you reach age 65.  Retiring prior to eligibility for Medicare means you may have to look into COBRA or a private individual policy, which can be expensive.
• You can begin receiving your Social Security benefit as early as age 62.  However, your benefit is then reduced 25% to 30% if you do not waiting to collect until full retirement age.
• Working part time during retirement will allow you to rely less on retirement savings in the beginning and you may also have access to affordable health care while waiting for Medicare.
• If you are married, and your spouse is still working too, it may pay to think about staggering retirements to ease the financial transition into retirement.

Creating a retirement income roadmap is a practical suggestion for managing and overcoming the unique challenges women face in retirement.  Don't sit this one out.  Join the discussion and learn along the way if necessary.  A financial professional can help sort through the options to develop a plan that is right for you.   One of my favorite quotes by Henry David Thoreau provides a timeless message for looking to the future; "Go confidently in the direction of your dreams. Live the life you have imagined."

Laurie Renchik, CFP® is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Financial Empowerment for Women Today

 How do you keep control and focus in your busy life? For many, the creation of a to-do list and the eventual checking off of items is essential.  Busy multi-taskers (code word for most women) have made lists work for them for generations.  My problem, however, is that I make too many lists and then forget where I put them.  They exist all over – on the back of envelopes, on my smart phone, or zipped securely in a pocket in my purse. 

Whether you have one list or ten, are diligent or more creative with your check list system I think it is fair to say that clearly, to-do lists empower those who partake.  Check!  When I talk with groups of women; either informally with my friends and family or professionally with clients and colleagues, the subject of financial empowerment is a popular topic and many times comes to the top of everyone’s to-do list.  Especially in today’s economy, with new financial realities affecting many families in many different ways.

What does financial empowerment look like for women today?  In my experience there is no single correct answer to this question.   Creating your own financial to-do list is one way to focus your energy and check your progress toward achieving financial empowerment.  Here is a “list” of anecdotal responses, in no particular order, culled from the many conversations I have had with women on this important topic.

What Needs to be on Your Financial To-Do List?

• My decisions about spending money will be made in a way that honors my values and responsibilities
• I will learn from my financial mistakes
• I will understand that taking care of myself financially is just as important as taking care of others
• I will delegate without abdicating responsibility for managing my money
• I will set and make progress toward financial goals
• I will know my value in the marketplace and initiate the compensation conversation

Imagine the satisfaction and confidence you will feel, and the empowerment that will emerge crossing the financial to-dos off your list. 

Want to share your financial to-do list with me?   Send me an email or give me a call! 

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.