One of the great rewards of financial success is having confidence that you can fund big, fulfilling plans, like buying a vacation house, having a comfortable retirement, supporting people and causes you care about and leaving a meaningful legacy. But risks to your wealth can pull the rug out from under your plans. We’ll cover those risks and what you can do to combat them so you can keep your wealth plan on track.
The following 4 risks could derail your goals:
- High Inflation
- Withdrawing From Retirement Accounts in a Down Market
- Investing Too Cautiously
- Rising Health Care Costs
1. High Inflation
High rates of inflation can shrink the value of your cash and other assets with alarming speed. If the recent rate around 9% 1 were to persist for five years, it would reduce the purchasing power of $100 to just $62.40. Even inflation of 3%, the long-term historical average, halves buying power in 23 years.
Wealthy families can more easily absorb pricier gas, groceries and other day-to-day expenses as long as they’re earning income. But inflation can force them to live more modestly than desired in retirement. More deleterious to their long-term goals may be inflation’s impact on their investments. For instance, inflation, along with the rising interest rates that it typically triggers, drives down the value of fixed-rate bonds, which are often used as a low-risk way to preserve wealth and generate income.
Inflation can also drive down stocks’ prices, especially stocks with fast-growing sales but low current earnings. On the other hand, the stocks of certain types of companies, such as those with the power to raise prices, may perform better during periods of rising inflation. Investors tend to flock to such stocks during inflationary times, driving up share prices. It’s important that an investment portfolio be positioned to account for inflation so that the value of the holdings increases enough to offset rising prices.
2. Withdrawing From Retirement Accounts in a Down Market
As you start to withdraw money from your retirement accounts, you could experience sequence of return risk. This refers to the markets generating a sequence of negative returns over several years at the same time you begin to take withdrawals. This risk means you may not have enough savings to last throughout your retirement. Should you find yourself in this position, take a closer look at your cash flow and see where you could reduce discretionary spending until the market levels out.
3. Investing Too Cautiously
As you age and near retirement, your portfolio allocation should become more balanced in terms of including equities for growth and bonds for capital preservation. The danger lies in tilting your portfolio too far to the conservative side. Whether you’ve been spooked by market corrections or just have a low tolerance for risk, you still need a growth component in your portfolio to help combat inflation, as mentioned above. Growth doesn’t mean taking unnecessary risks; it just means developing a strategy to balance growth and asset preservation to help ensure you can still reach your goals.
4. Rising Health Care Costs
It’s human nature to believe that we’ll live out our lives in relatively good health. But effective planning takes statistical probabilities into account. At age 65, the average American has a nearly 70% chance of requiring long-term care, and 20% will need such care for more than five years.2 Long-term care isn’t cheap: In 2021, the annual median cost of a private room in a nursing home was $108,408.3 And that doesn’t take into account the cost of medical care after accidents or for acute illnesses. Failing to plan for potential health care expenses could seriously undermine the ability of your family to achieve its financial goals.
Preparation, the Antidote to Risk
Significant wealth is usually created slowly and painstakingly. But it can be eroded quickly by risks inside and outside the investment markets. The good news is that comprehensive planning has proven very effective in helping individuals and families preserve their wealth so that they can achieve their goals. Your AdvicePeriod wealth advisor can identify short- and long-term risks to your assets and recommend solutions to preserve and grow your wealth throughout your lifetime.
Footnotes
1United States Inflation Rate, Trading Economics
2 “How Much Care Will You Need?”
3 Cost of Care Survey, Genworth
The information contained herein is not intended to be personalized investment or tax advice or a solicitation to engage in a particular investment strategy. The views expressed are for informational and educational purposes only and do not consider any individual personal, financial, or tax considerations. There is no assurance that any financial or investment plan or strategy will be successful. Investing involves risk, including the possible loss of principal. Please consult a financial professional before making any financial-related decisions.
AdvicePeriod is another business name and brand utilized by both Mariner, LLC and Mariner Platform Solutions, LLC, each of which is an SEC registered investment adviser. Registration of an investment adviser does not imply a certain level of skill or training. Each firm is in compliance with the current notice filing requirements imposed upon SEC registered investment advisers by those states in which each firm maintains clients. Each firm may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by an advisor with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about Mariner, LLC or Mariner Platform Solutions, LLC, including fees and services, please contact us utilizing the contact information provided herein or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money.
For additional information as to which entity your adviser is registered as an investment adviser representative, please refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) or the Form ADV 2B provided to you. Investment adviser representatives of Mariner, LLC dba Mariner Wealth Advisors and dba AdvicePeriod are generally employed by Mariner Wealth Advisors, LLC. Investment adviser representatives of Mariner Platform Solutions, LLC dba AdvicePeriod, are independent contractors.
