Investment Management for Retirement: The Balancing Act Carmichael Hill

When nearing retirement, it is essential to adjust your investment portfolio to reduce potential risks and protect your gains. This process of rebalancing helps ensure that your investments align with your financial objectives and risk tolerance, ultimately contributing to a successful retirement.

Managing Investment Risk

Risks come in many forms; so many in fact that no portfolio can ever eliminate them all. Successful investing in retirement is about managing and avoiding risk, not shutting it out entirely. Systematic rebalancing is one of the most effective ways to handle risk. This is a process in which you routinely take money out of the winners (usually equities) and reinvest it into the laggards (often bonds). This helps to keep your portfolio balanced and at its optimal allocation.

If your investments are skewed towards stocks and never rebalanced, then you have a real likelihood of losing significant sums during the next market correction. This is worrisome as you may not necessarily have enough time to recover from an economic slump as you age. But by rebalancing, you can modify your investments to ensure a balanced mix of assets, avoid skew and concentrated risks, and ensure that your portfolio matches your risk tolerance level.

Adjusting Your Investments to Meet Your Goals

Rebalancing your investments is crucial as it guarantees that your financial goals are accurately aligned with your investments. As you near your retirement, your investment priorities may shift, such as moving from growth to income generation. By rebalancing, you can modify your portfolio to reflect these changes, guaranteeing that your investments are effectively working towards fulfilling your financial objectives.

Optimizing Your Tax Situation

There are tax benefits to rebalancing well that go beyond simply mitigating risk. As a retiree, you likely have several accounts with different tax treatment, such as IRAs, 401(k)s, Roths, and taxable brokerage accounts. A good rebalancing program makes the most of the tax benefits in each of these account types. For example, trades in retirement accounts are shielded from taxation. Selling successful investments in these accounts can help you avoid capital gains taxes that you would generally incur in a taxable account.

Moreover, rebalancing your portfolio to put the non-income producing assets in your taxable account can help lower your annual taxable income. Holding growth-oriented investments in your Roth, which receives tax-free growth, can also yield long-term benefits. Your rebalancing program should incorporate the unique tax benefits of each of your accounts. This in turn can provide you with additional money for your retirement.

Pulling it all together

Rebalancing does not mean that you should make drastic changes to your investment portfolio overnight. Instead, rebalancing should be a gradual process that takes place over time. Small adjustments to your portfolio can help you achieve your investment objectives without taking on unnecessary risk.

Rebalancing is an essential part of retirement planning. It helps you manage risk, optimize returns, align your investments with your financial goals, and minimize taxes when done correctly. As you approach retirement, it’s important to review your investment portfolio regularly and adjust to ensure that your investments reflect your current financial objectives and risk tolerance. With proper rebalancing, you can enjoy a comfortable and financially secure retirement.

 

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Carmichael Hill & Associates, Inc. is a U.S. Securities and Exchange Commission Registered Investment Advisory firm. Registration does not imply that the SEC has endorsed or approved the qualifications of Carmichael Hill or its respective representatives to provide any advisory services. Advisor does not render or offer to render personalized investment advice or financial planning advice through this medium. Advice can only be given after:

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The information in this web site is based on data gathered from what the Advisor believes are reliable sources. It is not guaranteed as to accuracy, and does not purport to be complete and is not intended as the primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that the investor would participate in that investment or portfolio on a long-term basis and only after consulting with their investment advisor to determine their needs and tolerance for risk. With respect to any such identification, there can be no assurance that the fund or model portfolio will in fact perform in the manner suggested.

The results do not represent actual trading due to the timing of the clients’ trades and their trading costs. They may also not reflect the impact that material economic and market factors might have had on the advisor’s decision making if the advisor were managing the clients’ money. Investment and portfolio results may be different than the results the advisor’s discretionary clients achieve due to the timing of trades and the market conditions.

All references that might be made to an investment or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future.

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