The Three Inefficiencies

INVESTING: RISKY BUISNESS?

Navigating throughout retirement may seem daunting. However, your money’s most significant risk is not determining the best investment; it is no plan.

Financial freedom begins with a plan.

The Three Inefficiencies

Just like you would not build a house without a set of blueprints, your finances are the same way. We refer to the three most common mistakes in the average portfolio as the three inefficiencies. 

Distribution Plan

Tax Planning

Portfolio Efficiency

01.

Distribution Plan

Another way to reduce risk is to have a proper distribution plan. Imagine all of your money is in one pot, and you tell your broker that you need some cash from your account. The advisor is going to go into your account and sell stocks and bonds evenly. 

A better plan is to separate your money into fixed assets for income throughout your lifetime and let your stocks represent money you will never need to support yourself. If you can do this, you can divorce yourself from the market risk.

02.

Tax Planning

You had a plan to save your money, it is important to have an exit strategy. Paying more in taxes than you have to has the same effect as an additional market loss. 

03.

Portfolio Efficiency

Ignoring portfolio efficiency may cause you to suffer unnecessary loss. Measuring portfolio efficiency may identify an account that is on the path to becoming “broke”. It is essential to know the efficiency in your portfolio, this is why I meet with my clients twice a year to review each portfolio. 

All of life is a risk. The good news is that we get to choose the risks we take. To put risk in perspective, understand that fear and risk are not congruent. The solution to risk management is to become intellectually competent, because the more you know, the better informed your decisions will be and you will have less of a need to bite your bottom lip.

John Neyland
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