David Lerner Associates: Asset Allocation

David Lerner Associates: Asset Allocation

Core Facts

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David Lerner Associates Asset Allocation



As you transition into retirement, your priorities for and demands on your portfolio are likely to be different. Your asset allocation strategy will probably be different than the one you used when saving for retirement. During your accumulation years, your asset allocation decisions may have been focused primarily on long-term growth.

For example, when you were saving, as long as your overall portfolio was earning an acceptable average annual return, you may have been happy. However, now that you're planning to rely on your savings to produce a regular income, the consistency of year-to-year returns and your portfolio's volatility may assume much greater importance.

The goal of asset allocation

Balancing the need for both immediate income and long-term returns can be a challenge. Invest too conservatively, and your portfolio may not be able to grow enough to maintain your standard of living. Invest too aggressively, and you could find yourself having to withdraw money or sell securities at an inopportune time, jeopardizing future income and undercutting your long-term retirement income plan. Without proper planning, a market loss that occurs in the early years of your retirement could be devastating to your overall plan. Asset allocation alone does not guarantee a profit or ensure against a loss, but it can help you manage the level and types of risk you take with your investments based on your specific needs.

An effective asset allocation plan:

  • Provides ongoing income needed to pay expenses
  • Minimizes volatility to help provide both reliable current income and the ability to provide income in the future
  • Maximizes the likelihood that your portfolio will last as long as you need it to
  • Keeps pace with inflation in order to maintain purchasing power over time

Look beyond preconceived ideas

The classic image of a retirement income portfolio is one that's invested almost entirely in bonds, with the bond interest providing required annual income. However, retirees who put all their investments into bonds often find that doing so doesn't adequately account for the impact of inflation over time. Consider this: If you're earning 4% on your portfolio, but inflation is running between 3% and 4% (its historical average), your real return is only 1% at best--and that's before subtracting any account fees, taxes, or other expenses.

That means that you may not want to turn your back on growth-oriented investments. Though past performance is no guarantee of future results, stocks historically have had better long-term returns than bonds or cash. Keeping a portion of your portfolio invested for growth (generally the role of stocks in a portfolio) gives you the potential for higher returns that can help you at least keep pace with inflation. The tradeoff: Equities also generally involve more volatility and risk of loss than income-oriented investments. But effective diversification among various types of investments can help you balance lower-yielding, relatively safe choices that can provide predictable income or preserve capital with those that may be volatile but that offer potential for higher returns.

Accounting for interest rate risk

Some retirees are surprised to learn that even though a bond's interest rate may be fixed, bond prices can go up and down (though typically not as much as those of stocks). When interest rates rise, bond prices typically fall. That may not matter if you hold a bond to maturity, but if you must sell a bond before it matures, you could get less than you paid for it. Also, if you hold individual bonds or certificates of deposit, and interest rates fall before that investment matures, you may not be able to get the same interest rate if you try to reinvest that money. That could, in turn, affect your income.

There's no one right answer

Your financial situation is unique, which means you need an asset allocation strategy that's tailored to you. That strategy may be a one-time allocation that gets revisited and rebalanced periodically, or it could be an asset allocation that shifts over time to correspond with your stage of retirement. The important thing is that the strategy you adopt is one that you're comfortable with and understand.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Some of this material has been provided by Broadridge Investor Communications Solutions, Inc.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
Member FINRA & SIPC.


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website: http://www.davidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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