How Aging Alters Money Needs

Time shifts your personal investment requirements. What you need to do at 25, 50 and 70 are different. Understanding the differing phases of your financial life is vital to getting what you need right for retirement.

How often have you heard this phrase about the financial world: “This time is different”? Whether it was the tech boom of the late 1990s or the housing surge of the last decade, markets shifted. Time always shifts them.

Explaining how markets divert from their historical averages is dauntingly difficult. Economists and other savants try to explain why home values can appreciate indefinitely (think housing crash, 2006-09) or why technology companies don’t have to be profitable (think tech wreck, 2000.)

But where does your situation figure in? The financial services industry furnishes you with monthly and annual statements, whether through a website or paper copies mailed to you. With such account information in hand, you search out comparative data to find out how you are doing. That’s measured against market indexes like the Standard & Poor’s 500. Or in contrast to your friends’ accounts. Interesting comparisons perhaps; but these data snapshots provide no meaningful guidance to improve your long-term financial journey.

That is because, as time marches on, you are different. We all progress through a natural cycle called the phases of finance. When you are younger, we begin to save money. For some of us, this phase launches at 22, for others at 38. Whenever it starts, this is the accumulation phase. It has two primary areas of focus: saving the proper percentage of your income and investing in a tax-diversified manner. At this point, your rate of return matters least.

The second phase is preservation, when the savings you accumulated matter more than the money added each year. This is truly where the average return matters most. Keep in mind that, to get the average return of any investment or fund, you have to be invested for the duration. Most investors don’t have the discipline to sit through periods of market volatility. They sell their holdings and aren’t invested when the market rises again. That is why the majority of mutual fund investors receive less than what their funds’ did; they didn’t stick around to get the entire benefit.

The final phase is distribution. Here, you convert your assets to income. Distribution is perhaps the least understood part of the investing process, for both individuals and professionals alike. Mistakes at this time are often irreparable and usually avoidable.

During distribution, the tax treatment and the volatility of the assets cashed out are key. For instance, lower returns with reduced volatility can trump higher average returns. When you need to turn it into income, a high-flying stock, whose price zigs and zags, may be slumping. Some retirees use a three-bucket strategy, where the group cash and cash equivalents (which are the least risky) for near-term spending in one bucket, put bonds in the second bucket for use in six to 15 year, and stocks (which are riskier but have the best long-term potential) in the third bucket for after year 15.

Your account statement comes monthly, and if you are like most people, you look at the number the same way every time. Is it larger than before? We all want growth for certain. But at the same time, we all want stability and financial soundness.

As an investor, you must learn that it is different this time because you have changed. You are progressing financially and you need to look at the data accordingly.

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Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He teaches financial planning at Purdue University and is the host of Consider This with Big Joe Clark, found on WQME and iTunes. He is a Registered Principal offering Securities and Registered Investment Advisory Services through World Equity Group, Inc, member FINRA/SIPC. Big Joe can be reached at, or (765) 640-1524. Follow him on Twitter at @Big Joe Clark and on Facebook at

Securities offered through and by World Equity Group Inc. Member FINRA/SIPC. Advisory services can be offered by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

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