In today’s Trump economy, the need to have a clear philosophy about how you want to invest is important. The markets have been experiencing some volatility which has caused some to wonder when the next recession will occur.

I have many people curious about how to position their investments in today’s economic environment and they are seeking answers about what to do.

Every investor makes decisions based on varying degrees of knowledge and experiences with investing and we all have different tolerances when it comes to the idea of risk.

For example, for some the idea of making 10% or losing 10% in their portfolio is not a big deal, while for others, this would be unimaginable.

My personal experience is that as wealth is created, investors ultimately have a desire to protect what they have accumulated.

The amount of money that you have and the goals you have for your money all play a big role in how you view the level of risk you are willing to take on.

So, depending on where you are at, at some point there is often a mindset shift away from growth to preservation. This occurs at different times for different people but it does usually happen.

So, when it comes to investing, how you view your money will often determine the amount of risk you are willing to take and in turn can help define what type of investment to consider for yourself.

It may help to explain it like this, there are basically five different stages you go through when it comes to investing.

Just getting started

In this stage you initially have nowhere to go but up so the idea of risk is often full steam ahead.

Your accomplishment is often not tied to having a rate of return but is the actual act of investing.

It is important to note that there are very few options in this stage since many investments have minimums and requirements making them unavailable at this stage.

Investing for the future

When you have been investing for a while and have accumulated a couple $100k, what I find is that the investor often begin to want to diversify more than perhaps they were before.

They don’t want to avoid risk all together but they like the idea of spreading things around a little more.

This is often the time when people seek professional help to help guide some of their decisions.

A do it yourself portfolio using an 800# may sound appealing when you are just getting started but once you have accumulated some money you begin to realize that having trusted resource that you can call for guidance is valuable.

Retiring soon

Here is when reality begins to peak its head and the idea of just investing money long term begins to fizzle.

You are beginning to think about the time you have left before retirement and are thinking in terms of cleaning things up and toning down the investment risk.

Often this is where you want to make the most of the time you have left before retirement but realize that taking on too much investment risk is not a comfortable approach.

This is where you are likely to do things like consolidate accounts and get details of pension options and early withdrawal options for retirement accounts.

The idea at this stage is to begin to gather the pieces and position assets for how you plan to use them.

If you notice, investing is typically not the focus at this stage and beyond.  The focus is how you will use money and positioning for a life change.

The investments are more dictated by the plan than by purely investing. It is often more about preservation and utilization.

However, for some people, greed is a factor and it drives their behavior regardless of anything else relating to their financial situation. This attitude can often leave them exposed to too much risk.

Now, let me just say that I am not suggesting that you are not invested at this point or that there is a time when you are not invested at all.

What I am saying is that your focus may change over time and your philosophy about investing may very well shift to a more conservative perspective.

Retiring now

For those a couple months or a few weeks out from retirement, people often experience the nervousness of whether they can actually retire.

When people are overly confident about retirement, I get a little nervous for them because I am not always sure they have considered everything they need to consider. So, being a bit nervous is to be expected.

At this stage you really should have already gathered all of your social security and pension options and have your accounts consolidated and positioned for using them. If not, then this is something you will want to consider before you give your 2 weeks for retirement.

You don’t want to officially retire without first prepping and putting a retirement plan in place. Since the allocation of your investments is 100% dependent on how and when you plan to use them. Having a plan in place before you retire can increase the probability of a smooth transition.

Now, the goal is to not necessary need all the money you have accumulated all at once. If you need every dollar and every source available to you then you may be stretching the readiness of your plan.

The goal of a retirement plan is to make sure you have money available when you need it and have the income you need to enjoy your retirement.

So, from an investment standpoint we will want to focus on income distribution over growth. But for some of your money we have to consider the long term affects of inflation and medical expenses, which will require additional planning to cover these projected needs in the future.

With all of this, one thing I encourage to do at this stage is to have your plan tested. I see a lot of people who have never had their portfolio or their plan tested to see if it is actually capable of doing what you think it should do for you.

The reality is that just because you think you are doing the right things doesn’t necessarily mean that you are. Your confidence is not necessarily a guarantee that your plan will work.

Having your plan tested simply means that all the details of your situation are put together and run through a simulation of various situations including inflation, market fluctuations and whatever else we can throw at it to see how it holds up for you.

My opinion of this is that I would rather have an idea ahead of time of whether or not my plan has a high probability of success or a high probability of failure.

If you would like to have your plan tested let me know and we can discuss how to go about getting this done for you. All you have to do is shoot me an email letting me know that you are interested in our Results In Advance service

Now, the last stage we will cover today is…

Already retired

The most common mistake I see people make at this stage of investing is that they never changed their portfolio around from when they were working and accumulating money. They always left their foot on the accelerator and never dialed down their exposure to risk.

I have even seen people who have been retired for years but still have their money at their former employer. I am not sure exactly why but there is often a couple of reasons for this…

  • Either they simply don’t know what to do or don’t need the money and are just letting it ride.
  • Or they feel that the only way they can make their money last is to take on more risk.

Well, if this is you then let me say that neither of these mindsets are exactly what I would suggest. There may be better ways of positioning your investments that could be more beneficial for you.

There are too many examples to get into here but I have worked with many people who are already retired and are trying to improve their situation. And if that is you then we can talk for a few minutes and I will do my best to point you in the right direction. But one thing for certain is that I would not continue to do nothing.

So, when you think about these different stages and the mind set changes that go along with each, you will find that a cookie cutter – one size fits all approach just doesn’t make much sense. There has to be a philosophy and a reason for how you invest your money.

Now, I will say this.  I have people at all stages say to me that they want to invest in the stock market because it has always made money. And to be honest, I am not sure where people get this idea.

I wont get into a history lesson here but there are many examples of the market not making money.  There have been periods of time where the markets have actually lost money. So, facts aside, this is an example of a philosophy. However, I would base your belief system on facts not just opinion. There are many different beliefs about investing.

  • You may be conservative or you may be aggressive.
  • You may be optimistic or pessimistic about the markets.
  • You may want to be in the markets but have a back up plan if things go south.
  • You may have one toe in the market and be ok with that.

The truth is that many people invest because they think it is just what they are supposed to do. But the truth is that I have client’s that don’t want to be in the market at all and aren’t. And on the flip side of this philosophy I have client that are 100% equities and believe this is the way to go.

The reason your philosophy so important is because if you don’t have one then you are going to follow someone else’s and by doing that you may never be comfortable with what you are doing. But understand this, regardless of your investment philosophy – there is no way of knowing what the markets are going to do.

There is no way of knowing what influences will arise that will impact market performance either in a positive or negative manner. And there is never a time period that will repeat itself in its entirely.

So understand, that what the markets have done in the past is not necessarily going to be what the markets do in the future. I know this can be difficult to wrap your mind around but understand that there is not a one size fits all. Just because something sounds good or is easy to understand doesn’t make it the best options for you.

If you have a question about what you read today, shoot me an email at yourmoney and I will do my best to point you in the right direction.

Good Luck,

The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation. Kalos Capital, Inc. does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance.