How Does Diversification Differ in Retirement? - Adviser Investments

How Does Diversification Differ in Retirement?

February 1, 2022

How Does Diversification Differ for Retirement Accounts? with Kari's face

It’s a question we hear all the time: How should diversification differ between retirement accounts and non-retirement accounts? And how should your investment approach change once you retire? Vice President Kari Wolfson weighed in during our recent webinar, Diversification Is Dead…and Other Modern Myths.*

Please enjoy the excerpt below and click here for the full webinar replay with more informed insights you can use. 

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Kari Wolfson:

Diversification is a crucial tool to manage risk. And the whole point of being diversified is that not everything is moving in the same direction. Some holdings will do better than others in any given time frame. And diversification isn’t just about asset allocation, but also asset location, which is based on the tax efficiency of investments and anticipated returns. It’s all about maximizing after-tax wealth.

The idea behind asset location is to put your least tax-efficient, high-return investments in retirement accounts—starting with a Roth IRA and its double tax benefit—and your most tax-efficient, high-returning investments in taxable accounts. It sounds simple in theory, but every situation is different. It depends on your tax bracket, how much you have in retirement versus taxable accounts, and your cash flow needs.

When it comes to determining how to invest in any account, retirement or non-retirement, we always focus on your goals and objectives. That’s really the first step in creating a financial plan: Defining your destination and creating what we like to call your financial GPS, which is a road map to follow to reach your goals.

And when you’re approaching retirement—or even if you’re just starting the planning process—we’ll show you if you’re on the right track and what you can do to improve your plan. This might involve creating a budget, allocating your savings into the right buckets of taxable and tax-deferred accounts, and saving for your goals. And your investment strategy and financial plan will change over time. Retirement is one of those big transitions; you shift from earning income to needing income from your investments.

It’s important to review your plan and make changes to satisfy your cash flow needs, but retirement doesn’t always mean that you need to start taking distributions. Maybe you have a spouse who’s still working, or you have a pension or other sources of income, like rental income. If you’re in a lower income tax bracket, you may want to review Roth conversion opportunities.

Every situation is different. There are plenty of life goals to plan for. I encourage everyone to talk to a professional about creating your financial plan if you haven’t done so.

Click here for a replay of Diversification Is Dead…and Other Modern Myths. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.


*Webinar recorded after the market closed on Wednesday, January 26, 2022.

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