When Risk and Returns Really Start to Matter

I often tell new or prospective clients that investment management is the sexy part of the many facets of wealth management that I work on. For most clients, it is investment returns that get their attention.  But as I go on to explain what it is that I really do and how I help people figure out where they want to go and ultimately how to get there, investment management begins to take a back seat.Ben Carlson highlights a Forbes article on financial blogger Michael Kitces (who I also follow) in which Kitces touches on the following point, "Ten years before retirement, get serious about asset allocation. “The amount of return you get then actually starts to matter a lot, but the risk you’re taking matters a whole lot more, too.”Carlson goes on to give a good example of Kitces point below;

• Let’s say you start saving at 30, at which time you stock away $500 a month. Each year you increase that amount by 3% to keep up with inflation. Miraculously — because this is a fake retirement calculator scenario — you earn an even 7% annual return on your money each year. By age 60 you have roughly $830,000. Not bad. But let’s say you don’t want to retire until age 65. By then your portfolio would grow to more than $1.2 million. That means around 35% of your ending value at age 65 would come from the last 5 year’s worth of portfolio growth. The pressure at that point can be intense if you’re not sure what you’re doing.

Whether you are just starting out in your career and even if you are in the middle of it, the best thing that you can do for your investment portfolio is to continue to focus on your career investment and to make good financial decisions.The equation to build wealth is no secret but it does require a large dose of discipline rather than IQ; save as much money as you can in a tax-deferred retirement account, invest in yourself so you can earn more money, and limit the amount of debt that you carry.  The earlier you can get all of these working in balance with each other your chances for wealth management success increase.