WICHITA, KS - 05/18/2016 (PRESS RELEASE JET)
Traditionally, financial advice comes from two main sources—insurance agents and investment advisors. Financial tools are great for designing a diverse retirement plan, but the tools are only as good as the advice that goes along with them. The options for investing are continually evolving, but every single investment vehicle can be easily categorized according to three fundamental characteristics - protection, growth and liquidity.
Diversification is the time-honored financial theory for helping investors and consumers reduce the ups and downs of their retirement portfolio by spreading money into different vehicles in order to create a balance of protection, growth and liquidity throughout retirement. Diversification aims to reduce risks of specific types of investments—for instance, if one company in the S&P 500 has a bad quarter, those people whose portfolios are diversified probably won’t see their retirement plan derailed.
According to Randy Yeisley of Yeisley Financial Group, Inc. in Wichita, Kansas, that means structuring a retirement plan that provides this protection, growth and liquidity through different investment pathways— banks, insurance companies and the stock market—each of which offers one or two of these fundamental elements.
Protection: Insurance products such as fixed index annuities (FIAs) offer the reliability of a guaranteed income stream and protection from volatility, backed by the issuing insurer, of the consumer’s principal, but they are lacking liquidity.
While the lifetime guaranteed income stream at 4 to 5 percent that FIAs provide is appealing, the biggest concern with fixed index annuities comes when consumers are met with unexpected expenses and wish to draw larger amounts from their FIAs, in which case they could have to pay a hefty fee. Still, the positives fixed index annuities offer outweigh the negatives for many retirees.
“It can’t be beat, for guaranteed income,” Yeisley, an investment advisor representative and insurance professional, says.
Growth: Stock market investments are usually considered more liquid and offer more growth potential than other investments, but they lack protection.
According to Yeisley, investors must decide for themselves what the term "risky investment" means to them. While people are still in the workforce, they have the earning power to make up investment losses that their portfolio may suffer due to poor market performance or bad judgment calls, but as they approach the five-year retirement mark, they tend to scale back asset allocation to more conservative positions to keep pace with their diminished earning power.
Taking these measures could help prevent investment losses, which have the potential to disrupt portfolio growth and delay retirement.
During the golden years of retirement, many retirees live on fixed incomes derived from Social Security benefits or pensions. Because of reduced earning capacity, most retirees have no way to replace lost funds, and cannot bounce back from losses from risky investments or a volatile market.
Liquidity: the ability you have to convert any asset into cash quickly is important in retirement. Liquidity is also an ability to buy or sell a security without affecting the asset's price. When it comes to investments, liquidity is basically how “easy” it is to buy and sell.
“Retirees need to have ready cash to meet their day-to-day needs, and the key to this asset allocation strategy is actually having cash or liquid assets in a reliable, accessible form,” Yeisley says. “Everyone needs an emergency fund at the bank, so the liquidity and the protection are there, but the potential for growth is lacking.”
Cash is among the most liquid of assets, and stocks traded on the major exchanges are considered fairly liquid, because you can convert them into cash quickly and easily. However, stocks are lacking the protection factor that cash provides.
To clarify, liquidity relies on ready cash access, and many stock market investors have learned this lesson the hard way in times of major market volatility.
Examples of cash investments include:
• Bank deposits
• Savings accounts
Examples of cash alternatives include:
• Short-term CDs
• Money markets
Retirees and pre-retirees who take the time can see that diversification has done what it is supposed to do. And for investors looking for a responsible way to gear up for their goal of saving for retirement, diversification can be a fundamental key to success.
For more information about us, please visit http://www.yeisleyfinancial.com
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