Many people have decided they’ve had enough of roller-coaster financial markets. They’re bailing out and placing the money in “safe” havens like bonds, cash, and CDs.
Understandable—but for a great many people this is precisely the wrong thing to do, says Jerry Miccolis, Chief Investment Officer at Brinton Eaton and co-author of Asset Allocation For Dummies (Wiley, 2009).
“Bonds and cash will not provide you with protection against inflation,” he says. “And for most people, the biggest threat to a comfortable retirement is inflation — not short-term market volatility.”
All investors – regardless of age – should inform their retirement planning with an underutilized tool: an actuarial life-expectancy table, says Miccolis, who had a long career as a consulting actuary before going into investment management and financial planning.
Recent tables have some eye-openers. If you are a 65-year-old male, you have a 50% chance of living to 85 (88 if you’re a female) and a 25% chance of living to 92 (94 if female). A couple at 65 have a 50% chance that at least one spouse survives to age 92 and a 25% chance that one will survive to age 97. If you’re already over age 65, you can expect to live to even more advanced ages. And updated tables that will emerge from the 2010 census will likely extend those life expectancies even further.
“Most people understate their life expectancies — and thus their investment horizons — by at least a decade. To achieve a retirement portfolio that will meet your needs through your expected lifespan without exposing you to too much risk, you need a portfolio of diverse investments that work together to both exploit and tame market volatility. This will produce a less volatile, yet high-performing portfolio over the long term,” he says.
“A truly diversified portfolio should include stocks, real estate, commodities, timberland, agribusiness, managed futures, absolute-return strategies plus some safe havens like bonds and portfolio protection,” Miccolis says. “And you need to rebalance these asset classes regularly.”
Actuarial information is from 2000 and is provided by the Society of Actuaries.
Jerry Miccolis, CFA®, CFP®, and Fellow of the Casualty Actuarial Society (FCAS), is a senior financial advisor, Chief Investment Officer, and co-owner of Brinton Eaton, a boutique wealth advisory firm in Madison, N.J., serving individuals and institutions throughout the U.S. He is also co-author of Asset Allocation For Dummies® (Wiley 2009). Mr. Miccolis is a member of the American Academy of Actuaries (MAAA).
About Brinton Eaton
Based in Madison, NJ, Brinton Eaton is a boutique advisory firm with a long history of serving affluent individuals and their families across multiple generations. The firm helps its clients protect, grow, administer and ultimately transfer their legacy of wealth through a full range of integrated services, including lifetime cash flow projections, financial/tax/estate/retirement planning, investment management, charitable giving, and business succession planning. Brinton Eaton’s clients tend to be corporate executives, professionals, entrepreneurs, and retirees with investable assets over $2 million. For more information, visit www.brintoneaton.com.
