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News and Quarterly Updates


Monday, July 15th

Reducing Retirement Plan Risk

Here in Arizona, we are now officially in monsoon season.  This means that when the weather conditions are just right, we can get some huge afternoon storms that bring lots of dust, wind, rain, lightning, and flooding to the valley. 

Last year in July, my family and I were out of town enjoying a little time at the beach, when one of these monsoon storms rolled through, knocking out the power to my house.  When the power was restored, my thermostat automatically reset to 60 degrees.  In our Arizona summer heat, this meant the air conditioner was running at full capacity around the clock and the air conditioner could not keep up with that kind of demand. 

The coils froze over and the air conditioner stopped functioning.  Then all that frozen water started to melt, causing the air handler to flood and the surrounding drywall to collapse.  Eventually the ceiling caved in, dumping all that water into the family room below.  We came home to a wet, soggy mess.

When all was said and done, it turns out that the whole mess could have been avoided with a $1 AA battery.  The backup battery in my thermostat was dead, causing the thermostat to turn off when the power went out and then reset itself at 60 degrees when the power came back on.  If the backup battery had been working, the air conditioner would have continued to function at its happy, comfortable 78 degree setting and all of the ensuing damage would have been avoided.

As the saying goes, an ounce of prevention is worth a pound of cure.

This is also true when it comes to your retirement accounts.  It’s important to find ways to mitigate large losses and contain extensive damage that can alter or postpone your retirement plans due to market fluctuations.  The closer you get to retirement, the more important preservation becomes.

Reducing your risk in order to protect your money during the preservation and distribution phases of retirement is an important part of any good retirement plan.  This can be accomplished through wise portfolio allocation and diversification, employing tactical money management, and using guaranteed investments.

Portfolio AllocationPortfolio allocation is the way you divide up your investments and where you put your money to grow.  Generally, you will want to divide your money among different asset categories such stocks, bonds, mutual funds, investment partnerships, real estate, cash equivalents, and private equity.  The idea is that each different asset class has a different correlation to the others, meaning that they perform differently in the same market conditions.  For example, when stocks rise, bonds often fall.   Or at a time when the stock market is correcting, real estate may begin generating above-average returns.

There are different allocation models that are recommended depending on your goals and your time from retirement and your risk tolerance.  Depending on your individual circumstances, your money can be reallocated into different asset classes to adjust the amount of risk you have. 

It is good to evaluate and reevaluate your portfolio allocation from time to time to make sure it is still meeting your goals and contains the appropriate amount of risk.  You never want your retirement plan to be at risk because of improper portfolio allocation.

Tactical Strategies – Sometimes even having a balanced portfolio isn’t enough to fully protect your money from severe market fluctuations.  It is important to have a tactical strategy to make your portfolio significantly more conservative when multiple signals, indicators, or momentum shifts occur in the market.

Having a strategy in place to dramatically reduce your losses when the market is much more likely to go down can help you preserve your principal and gains.  By conservatively allocating your portfolio at these times, you can avoid losses so that in the market recovery that follows a market drop it will enable you to add to your portfolio instead of just getting you back to even. 

Of course, identifying when the market is about to make a significant correction or is ready to crash can be difficult, but it is better to err on the side of caution.  Protecting your money should be the highest priority and being safe rather than sorry is the best strategy when it comes to your retirement portfolio. 

Make sure you have tactical strategies in place to consistently and constantly monitor market conditions and reallocate your assets proactively.

Guaranteed Investments – There may be a place in your portfolio where there is a need for a guaranteed investment.  These investments, typically seen in annuities, guarantee the investor a specific return on their money, regardless of market performance.  They can allow you to grow you money without the risk of loss no matter what happens on Wall Street, Capitol Hill, or overseas, which can offer a valuable safety net for many investors. 

One small, low-battery indicator light would have saved me a lot of hassle last summer.  When it comes to your retirement savings, of course, so much more is at stake.  Make sure that your accounts are properly evaluated for the right risk tolerance and then monitored constantly for unseen, unpredictable, and ever-changing market conditions. 

Proper asset allocation and diversification, tactical money management, and the appropriate use of guaranteed investments can protect you and your retirement plans and not only give you peace of mind, but real results and protection in any market conditions.   

At Acute Wealth Advisors, we understand the real risks and threats to your retirement accounts and believe, like Warren Buffett, that your first priority in investing is to never lose your money.   We’re here to help you protect your money and reduce your risks whenever and wherever possible. 

Contact Acute Wealth Advisors today to see what we can do to help preserve everything you have worked so hard for.

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Matt Deaton