Retirement is a stage in life when financial stability becomes paramount. For many of you nearing or enjoying retirement, the priority shifts to preserving the wealth you’ve accumulated over a lifetime. However, the lure of high-risk investments and the potential for substantial returns can be tempting. In this newsletter, we discuss whether taking the plunge into more speculative ventures is a prudent choice for your golden years.
Understand Your Allocation Beyond The Retirement Portfolio
Allocating a portion of your funds to high-risk investments may seem like an appealing strategy to boost your retirement savings, but it’s crucial to do so judiciously. Consider only investing money that you can afford to lose, often referred to as “fun money,” which represents a small percentage of your entire retirement portfolio.
Establishing how much you’re willing to risk outside your primary retirement account is essential. An overexposure to volatility isn’t advisable when regular income streams become limited.
Not All “Fun Money” Is Equal
There’s no one-size-fits-all when deciding on the amount considered as fun money. It varies greatly depending on personal circumstances, risk tolerance, and other financial obligations. For some, it might be a small part of their discretionary income, while for others, it could be a modest windfall from an unexpected source. However, ensure that these decisions don’t jeopardize your main retirement funds needed for a comfortable and secure retirement.
Bear In Mind Tax Considerations
Any investment income, including the profits generated from high-risk ventures, is subject to taxation. Understanding the tax implications of these investments is crucial, as the consequences can vary widely based on the type of investment and its structure. It’s wise to consult with a financial advisor to comprehend how fun money investments might influence your overall tax situation.
Who Is In Charge Of Managing This “Fun Money”?
Before shifting your money into more speculative choices, decide whether you’ll be self-managing these funds or if you will enlist professional management. This decision hinges on your investment knowledge, the time you have to monitor these investments actively, and your confidence in managing the associated risks. The complexity of high-risk investments often warrants professional oversight.
Ensuring The Additional Holding Complements Your Portfolio
While diversification is a well-touted investment principle, not all investments make a valuable addition to your portfolio. It’s imperative to assess whether a new, high-risk investment integrates well with your existing holdings. The goal of diversification is not to add more risk but to balance it. Any new investment should contribute to achieving a well-rounded and robust portfolio.
Ultimately The Smart Decision is The Careful Decision
Taking on high-risk investments as a retiree can be exhilarating, but it’s not without its pitfalls. The key is balancing the thrill of potential high returns against the security of your fundamental retirement needs. Always consider the broader picture, keeping in mind that what might seem an exciting gamble today could have long term implications for your financial health.
Before making any significant financial decisions, please consult a certified financial professional who can guide you through a thorough analysis of any potential investment ideas and help you implement them.
Darren Jurick is a well known financial advisor in Florida and has been advising clients how to tax efficiently grow, preserve and distribute their wealth for almost 30 years. For the first ten years of his career, Darren focused on helping younger clients plan for their future retirements.
Since then, his practice has shifted to working with business owners and those in or near retirement. Darren also advises his clients on a variety of asset protection, income taxation and estate-planning issues. Darren is committed to educating, involving and motivating clients to help them take control of their financial futures. Darren attended Tulane University College. His career in the financial industry began at Merrill Lynch. Darren has lived in Parkland, Florida since 2012.
