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One important principle is to let the financial-planning process and clients’ goals drive their investment planning. We have no preconceived notion of what might be most suitable for any given client. We subscribe to the philosophy that clients will tend to be more comfortable in retirement if their basic lifestyle needs can be covered to a large degree by a combination of guaranteed-income sources, whether a pension, Social Security, or a suitable annuity product.
Risk management should be paramount in investment planning. We’ve lived through several significant market downturns and understand how they can be a powerful force that can derail an investor’s resolve to stick with their investment plan. We also understand how the sequence of returns can devastate a retirement plan if portfolio risk management is not a top priority. For younger investors, market downturns will most likely be less of a negative factor when you consider the benefits of dollar-cost averaging over time. For relatively older investors, risk management takes on more critical importance. The worst case for any investor is when they let their emotions—whether fear or greed—take over. Fortunately, if you have done the job of investment planning properly as an advisor, and set realistic expectations for the long term, that is a relatively rare occurrence.
The challenge is to create an approach to the investment portfolio that will mitigate risk, smooth out volatility, and has a goal of keeping clients on course.