Here are the basics for making
sound financial decisions.
GRIS Planning Process
I use a simple four-step planning process to help clients reach their
financial goals called “GRIS.” It stands
for:
Goals – Let’s be clear about
what you’re trying to accomplish in terms that are important
to you.
Risk – How much chance do you want to take
that you may not reach your goals, always remembering Steve’s
Rule #1: TNSFL (There’s No Such Thing as a Free Lunch)? If
you want less risk, you’ll have to save more, spend less,
accept less investment return -- or some combination of these. If
you’re willing to accept more risk of failure, you can save
less, spend more and hope for more investment return.
Invest – Investing without a plan is like
setting out on a hike without a map – you may get there, yet
your chances are better with a plan. I’ll help you create
your personal Investment Policy Statement (IPS). Once you have a
plan, follow it. Otherwise you’re likely to wander into the
wilderness.
Save/Spend – These are two sides of the
same coin. When it comes to any asset, you’re either saving
or spending it. The right amount of savings will help you reach
your goals. The wrong amount of spending will keep you from your
goals.
Four Cornerstones for Investing Before
Retirement
While you’re saving for retirement, there are four investment
building blocks. They are:
- Know your risk tolerance and time horizon for when you’ll
need the money
- Diversify among different asset classes
- Use index funds
- Arrange your investments according to a core and satellite
approach. The core is a mix of index funds in different asset
classes. You use the satellite to invest in areas of special interest
that you think have the chance to give you greater gains.
Three Buckets Investment Approach After Retirement
After you’re retired, you need a sound way to draw down your
retirement savings. The Three Bucket approach works like a charm after
you’re retired and it’s as simple as it is effective.
Here’s how it works:
Bucket One – one year’s worth of expenses
in a no risk money market fund or savings account.
Bucket Two – a series of CDs or the highest
quality bonds with specific maturity dates from one to 10 years
from the date you start retirement. Each year, when one of these
instruments matures, you cash it in and use it to fund bucket number
one.
Bucket Three – a well-diversified mix of
index mutual funds that invest in U.S. and non-U.S. equities and
Real Estate Investment Trusts (REITs). The goal is to hold the assets
in this bucket (except to rebalance it once a year) until you need
to refill bucket #2 once every 10 years or more.
I have written several articles on investing to amplify these points. Visit the
Free Resources page of this Web site to learn more.
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