Grow your money without losing income

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Ultimately, the job of any retirement plan is to ensure that your income will last as long as you do. To achieve that, an element of growth is usually necessary as part of an overall plan. There is a right way and a not-so-helpful way of adding this element of growth to your plan. The stock market isn’t the only place you can lose money during retirement. You can also lose money in interest-bearing accounts due to inefficiencies and unnecessary fees. This is why I stress to my clients, “Plan first, and invest second.”  

Once you have the lifestyle funded, you shouldn’t have to be as conservative with your Leave On Money. Having access to liquidity is important as well. Some interest-bearing accounts such as annuities have limited access to liquidity, and this can put you in a pinch when an unexpected expense comes along. Conversely, you don’t want to have all of your money in equities, either, because having to sell during a down market due to an emergency expense can also be costly.  

The “plan first, invest second” formula gives you an immediate way to make sure that your income needs are met. Once you have planned for your lifestyle, you then have the opportunity to take your additional assets and leverage them for profit to supplement your income in the future, to prepare for anticipated healthcare costs, or to contribute to your legacy. Stable income also means that you should have the staying power to stick with your investment portfolio through the ups and downs in the market. 

A fickle market can raise the eyebrows of even the most veteran investor. Taking a hit in the market hurts no matter how stable your income. Part of the pain comes from knowing that when you take a step back in the market, it requires an even larger step forward to return to where you were. As the market goes up and down, those larger gains you need to realize to get back to zero start to look even more daunting. What you need to keep in mind, however, is that there is a difference between losing money in the market and losing your income. 

The goal with any smart financial plan is to get your lifestyle fully funded so that when the market drops, you don’t feel that fear. You know that your income needs are met, so you can leave the growth money alone. When you aren’t taking withdrawals from the accounts set for long-term growth, then you don’t sell your stocks when they are down, and you don’t lock in your losses. Allowing your money to stay in Leave On mode is important to its growth when using long-term investment vehicles.  

Many people come to this fork in the road where they have to look closely at the money they want to Live On versus the money they want to Leave On. Some people have to make a decision about their wants versus their needs; other people have to understand that the immediate purchase of a large luxury item such as a motorhome or winter condo in the tropics might not be the best thing for the future of their overall plan. I often remind investors that you can’t live off a portfolio, but then, neither can you live off a pile of money. It is how you plan and what you do with that pile of money that makes you successful.  

It can be challenging to watch the stock market’s erratic changes every month, week or even every day. When you have your money riding on it, the ride can feel pretty bumpy. When you are managing your money by yourself, emotions inevitably enter into the mix. The Dow Jones Industrial Average and the S&P 500 represent more to you than market fluctuations. They represent a portion of your retirement. It’s hard not to be emotional about it. 

Everyone knows you should buy low and sell high. But this is what is more likely to happen: The market takes a downturn, similar to the 2008 crash, and investors see as much as a 30 percent loss in their stock holdings. It’s hard to watch, and it’s harder to bear the pain of losing that much money. The math of rebounds means that they will need to rely on even larger gains just to get back to where things were before the downturn. They sell. But eventually, and inevitably, the market begins to rise again. Maybe slowly, maybe with some moderate growth, but by the time the average investor notices an upward trend and wants to buy in again, they have already missed a great deal of the gains. 

The only way to avoid this pattern is to have your lifestyle fully funded so that when the market drops, you don’t feel the fear of losing that money. Instead, you can let the stock market do its thing and rest assured that your lifestyle is fully funded. Professional money managers don’t make market decisions based on emotions. They have the ability to pull out and go to cash based on market conditions and based on the overall goal of the investor. 

Do you need help getting your retirement roadmap in order? Fill out the form below or call (317) 903-9157 to schedule a no-cost, no-obligation visit with the retirement experts at ReJoyce Financial.

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