I wanted to start by congratulating you on getting to this point. You’ve worked hard for a number of years and have had the discipline to consistently save and accumulate the nest egg you have today. No more having to wake up at 4-5 AM in the morning to beat the early commute, no more deadlines and no more office politics. None of those lousy performance reviews and no more business trips. If you’re on a plane, its destination is a tropical island where you will relax on the beach with an alcoholic beverage of choice. You have earned the right to make all decisions on what you do and when.
As you slowly paddle on your body board through the calm waters of conservative investing, you realize that today’s investment options offer returns that are nowhere near your expense needs. You then look out on the horizon and see some of your fellow retirees standing up on their surfboards and riding the big waves of high yield, high risk investments that make up most of their portfolio (high yield always equals high risk). They seem to be covering their expenses and boy can they hang ten. It is certainly tempting to joint them and surf your way into the sunset.
My advice to all of you is to hang loose and not hang ten. More often than not, those retirees riding the waves of high yield investments will experience a wipeout. With this, will go much of their retirement savings that they have worked so hard to accumulate over the years. There simply isn’t the time to recover and get back into the ocean. Let those young whippersnappers ride the big waves. They have the time to experience a wipeout and can live to surf another day.
In retirement investing, it most often makes sense to take what you are given and not push too hard for more. I would say that such is the case today more than ever. Have 3-4 years of expenses in a mix of cash, FDIC insured CDs and high quality short-term bonds. Adjacent to this, you can have a conservative growth portfolio and maybe get a tad adventurous in some places. In the next six years, the investment climate will likely be much more turbulent than the last six. Patience my friends, investment opportunities have a way of jumping into your lap. Hang loose and don’t force the issue. You will likely have the chance to earn higher conservative returns in the future.
By slowly paddling through the calm waters and maintaining the discipline that has gotten you to this point, you will be better off than most. Just hang loose and watch those surfers hang ten on their fancy boards. They will have their fun for a while, but you will be the one that will ride your board into the sunset.