Financially Speaking

What does a comfortable retirement mean to you?  Traveling to faraway destinations?  Buying a vacation home or perhaps having the freedom to visit friends and family across the country.  Whether you are chasing your dreams or looking to alleviate the very common concern of “what if I outlive my money”, you should have a sound investment plan in place to provide you with the financial security you need.

Once most individuals reach retirement, their primary investment objectives generally shift from growth to income generation and capital preservation.  Investment portfolios are therefore often geared towards safer investments.  Depending on the retirement lifestyle you choose, the after tax returns generated from these investments may be enough to sustain your lifestyle throughout retirement.  Or will they?

The Eroding Power of Inflation

While many of us are aware of how declining interest rates and the annual deduction of income tax serve to reduce the income you receive from your investments, there is also something else at work that is not as evident but effectively erodes your standard of living.  The culprit is inflation.  Inflation is the ever increasing price of goods and services that you depend upon or desire.  It is a subtle, gradual force that has an adverse effect on the future spending power of your money.

Over the past 25 years, inflation has averaged approximately 4% annually.  Currently, the annual inflation rate is sitting at approximately 2%.

Although the latest inflation figures show relatively low inflation and day-to-day inflationary prices increases are often barely noticeable, over the long term a yearly inflation increase can add up to a serious drain on your buying power.

Reduce Your Risk by Diversifying You Portfolio

A common and often effective antidote to inflation is to build a retirement portfolio that is primarily geared towards income generation and capital stability but includes a capital growth component as well.  Although common stocks and equity mutual funds are potentially riskier investments in the short-term, they have historically offered the bust after-tax opportunity to stay ahead of inflation and keep income growing.  And contrary to popular belief, it may be possible to include stocks or equity mutual funds in your retirement portfolio without incurring much additional risk.

This is because many financial markets and asset categories do not move in the same direction at the same time, which can decrease the overall volatility of your portfolio.  For instance, when bond prices decline in value, stock prices typically go up.

Protect Your Purchasing Power with Symphony TM

Staying ahead of inflation is critical and it’s important that you take steps now to protect your purchasing power.  Finding the right balance between stocks and bonds is often tricky.  That’s why Investors Group offers investment programs such as “Symphony” which are specifically designed to identify the proper asset mix that is geared towards providing inflation-beating returns without taking undue risks.