When was the last time you talked with an investment professional who didn’t promote diversification? Stocks, bonds, cash, real estate, some international as well as domestic investments–it’s called asset class diversification and it’s a principle of sound investing.
According to Jeff Bernier, an Atlanta-based financial planner, elderly investors have a unique set of concerns: how to generate income in retirement, how to plan for skyrocketing healthcare costs should they become ill or disabled, and how to make their money last through an extended lifetime.
Traditionally, elderly investors have moved from more “risky” investments like stocks to more conservative holdings such as government bonds, annuities, CDs and cash. Bernier warns that such an approach may actually create a greater risk for the elderly investor.
“What’s important is cash flow. Therefore, a senior’s portfolio should be focused on when the money will actually be needed,” Bernier explains. This involves protecting an elder’s assets against the risks of a volatile market for the immediate future. But it also means planning for the returns that will be necessary to protect against what Bernier calls the longer term “purchasing risk.”
A typical scenario:
First five years of cash flow needs: Invest in liquid assets like CDs that provide no immediate risk of loss of principal.
Second five years of cash flow needs: Invest in intermediate-term bonds, with the condition that, like any class of investment, the investor remains diversified–municipal, corporate and treasury bonds.
Beyond 10 years: Include higher risk investments such as stocks mixed with long-term investments like real estate.
“Elderly investors have suffered over the years with so-called safe investments that haven’t kept up with inflation, Bernier offers. You need the kind of returns produced by equities to ensure purchasing power for the long-term.
“We are mindful of the escalating costs of long-term care on Georgia seniors. Therefore, in addition to an appropriately allocated portfolio, I encourage my clients to consider the purchase of long-term care insurance as a way to protect their assets against the skyrocketing cost of long-term care. The bottom line is that I like the idea of shifting the risk of long-term care to an insurance company and protecting clients’ assets.
“We want our elderly clients to enjoy the assets they have worked a lifetime to build, be prepared for the increased costs of growing older, and have enough left to leave a legacy for their children or to causes that are important to them.”
By Jeff Bernier, CFP, ChFC, CFS
TandemGrowth Financial Advisors, LLC