Would You Rather Hope the Market Cooperates or Know Your Strategy Is Protected? 8 Questions to Find Out.

I know. Choosing the right investment strategy can feel overwhelming. With so many strategies like purchasing term insurance and investing the difference, Indexed Universal Life (IUL) policies, Traditional IRA's for tax-advantaged distributions, and open market investing, it’s easy to get lost in the noise. The key is to find what fits your unique situation. Before you decide, ask yourself these eight essential questions. They will help you clarify your goals, understand your risk tolerance, and select a strategy that aligns with your financial future. Then seek someone who operates specifically with those strategies.

Reviewing financial documents to choose investment strategy

1. What Is My Risk Tolerance?

Understanding how much risk you can comfortably handle is the foundation of any investment plan. Risk tolerance varies from person to person. Some investors can stomach market ups and downs without panic, while others prefer steady, predictable returns.

• High risk tolerance might lead you to stocks or aggressive growth funds.

• Low risk tolerance could mean bonds, fixed annuities, or IULs with guarantees.

  
  

Think about how you reacted during past market fluctuations. Would you sell in a downturn or hold steady? Your emotional response matters because it affects your decisions and ultimately your returns. More importantly, the fluctuations greatly impact your outcome.

So what are you looking to achieve?

2. How Long Will It Take With My Current Strategy to Achieve My Goals?

Time is a critical factor in strategizing. The longer your money stays vested, the more it can grow through compounding. Calculate how long your current plan will take to reach your target amount.

For example, if you want to save $500,000 for retirement and your current investments grow at 6% annually, how many years will it take? If it’s longer than you want, you may need to adjust your contributions or risk level... Or find a strategy with higher interest on you money. Think of it like this... The golden "rule of 72". Take the interest rate you are earning on you money and divide it by 72. This will give you insight to how long it will take to double.

But why 72? In simple terms it easy to estimate compounding interest that 69.3%, furthermore it is easily divided by common interest rates we see today like 2, 4, 6 and 12.

Let's stay focused our goals are coming up.

3. Am I Planning to Hit My Goals or Planning Past My Goals?

Some people plan only to reach their goals, like saving a certain amount by retirement. Others plan beyond, aiming to have extra funds for unexpected expenses or legacy purposes.

Planning past your goals means building a cushion. This can protect you if markets underperform or if you face unexpected costs like healthcare or family needs. Additionally, let's face it. No one ever tells you to plan for the years in retirement you plan to live. That can be an additional 30 years! What do you do in that time? If you only plan up to retirement, then you are greatly disadvantaged when it comes to living in the subsequent years in addition to unforeseen expenses, medical nuances, and emergencies. Don't fall for it, plan ahead.

4. At What Age Do I Plan to Attain That Goal?

Your timeline affects your strategy. If you plan to retire at 60, your approach differs from someone targeting 70. Younger investors can afford more risk and volatility because they have time to recover losses. For those closer to midway to retirement, the risk becomes less and certainty is the coveted path. Is it guarantees or no guarantees for you at this point?

If your goal is near, you might want safer investments to protect what you’ve accumulated. This balance between growth and safety depends on your age and timeline. Let's pause for a moment.

Let's say you have been growing your retirement fund conventionally, and still have a spark in you to use discretionary income to invest in the market.

You have a few things to consider when you start to cross the retirement bridge.

1. Possible income tax in retirement.

2. Taxes on the gains from the investment portfolio.

3. Required minimum distributions at age 70.

Questions to ask:

• What do I think taxes will be later down the road? Will it go down, stay the same or go up?

• How much will my life be impacted by taxation in the later years, and will it bring my financial strategy below my comfort living threshold?

• Will I have to go back to work?

• Who can help put a plan together with me to prevent this from happening?

Read on.

5. What Do I Plan to Do With My Goals Once They Are Achieved?

Knowing what you will do with your money after reaching your goals shapes your strategy. Will you:

• Use it for retirement income?

• Leave it as an inheritance?

• Finally Travel?

• Pick up hobbies you missed during your working years?

• Continue furthering your education?

  
  

For example, if you want steady pension-like income, strategies with guaranteed payouts or tax-advantaged withdrawals like IULs might be suitable.

6. What Tax Options Do I Have?

Taxes can significantly impact your returns. Some strategies offer tax advantages:

• IUL policies provide tax-deferred growth and tax-free withdrawals under certain conditions.

• Retirement accounts like IRAs and 401(k)s offer tax benefits but have withdrawal rules.

• Taxable accounts offer flexibility but no tax breaks.

  
  

Understand your current tax bracket and future expectations. Choosing the right vehicle can save you thousands over time. Interesting fact. Over 50% of your potential lifestyle can be swallowed by the combination of taxes, fees, and rising medical costs.

Is this what you really want? Nobody is telling you either. SMH

Supporting Reads:

• Safe Money on inflation: https://safemoney.com/inflation/cpi-and-retirement/

• Charles Schwab on Health Care Cost: https://www.schwab.com/learn/story/health-care-costs-retirement-are-you-prepared

• TD Wealth on Fee Draining: https://tdwealth.net/investment-fees-real-cost-30-year-retirement/

Again, you have to ask what is your tolerance? This can be a lot to take in, and my apologies if it seems a bit large to process. However, my goal is to help you understand at birds-eye view what is going on for you to make an educated decision. I did my best to summarize, but since I am not in front of you, I still need to give you the insights to help you decide what is right for you. Guarantees or No Guarantees? It's up to you.

7. Do I Want Guarantees or No Guarantees?

Some investors prefer guarantees on their principal or returns, even if it means lower growth. Others accept no guarantees for the chance of higher returns.

• Guaranteed options include fixed annuities, IULs with minimum credited interest, or bonds.

• No guarantees include stocks and mutual funds, which can fluctuate widely.

  
  

Decide what peace of mind means to you. Guarantees can protect your capital but may limit upside potential.

Understanding Variable Market. It has fluctuations and many suggest to ride it out and dollar cost average to find what your gains actually are. This is a common practice for most fiduciaries, but doesn't mean it is the only way for the more conservative investors.

Is it your intention to cross your fingers with your future or mathematically plan the outcome with protection against losses?

Again, up to you.

8. What Kind of Protection Do I Have on My Growth?

Protection on growth means how your investments shield you from losses. For example:

• IULs often have a floor, meaning your credited interest won’t go below zero even if the market drops.

• Diversified portfolios spread risk across assets to reduce volatility.

• Stop-loss orders or other tools can limit losses in open market investing.

  
  

Knowing how your growth is protected helps you avoid unpleasant surprises and keeps your plan on track.

Choosing the right investment strategy is not about following trends or doing "status-quo" because that is what your parents always did or because that is all your employer can offer you. It’s about answering these eight questions honestly and tailoring your plan to your needs. Even if you need to find someone proficient in that space and making sure you own your plan. Take time to reflect on your risk tolerance, timeline, goals, tax situation, and desire for guarantees. This clarity will guide you to a strategy that fits your life and financial future. Through education we can guard ourselves from the common pit falls we see around us, stop planning to adjust to live on less income, because that's what we do in retirement; additionally we can teach our children an improved way of avoiding the pit-falls and discontinue being a generation who "dropped-the-ball."

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