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March 8, 2011

Planning requires allowing for flexibility

The March 8th issue of “The Wall Street Journal” contained articles that discussed, strategies for retirees, making a case for annuities and ultra short funds.  A reader of these articles will realize that there are numerous approaches and variables to having enough for retirement.  The approach to take depends on many factors including how you want to live in the future, life expectancy, risk tolerance and an infinite number of other factors. 

The need for flexibility appears throughout all the articles.  The need to periodically review what has occurred is implied. There is not one strategy or product that fits every situation all the time.  Circumstances change, health changes, financial markets change, business cycles occur, life events occur, geopolitical events occur, etc.

None of the articles discuss when the planning should begin.  Planning should start early.  Choices made in selecting a career impact your human capital.  That is, how much you can earn in a lifetime.  The stability of a career will impact a person’s tolerance for investment risk.  Risk includes not only incurring a loss, but also seeing investment values fluctuate. 

Generally rates of returns increase as risk increases.  The amount of risk that can be tolerated changes with time and experience.  Having a plan early in life, will aid in adjusting to the unlimited factors that impact how much someone has and how long it will last.  The plan provides a way to identify what needs to be changed.  That is, an effective approach will be flexible and need to be reviewed periodically.     

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