The Pivot from Accumulation to Preservation

Jeff Pisan |
Categories
Education

You’ve spent most of your career saving and watching your account compound.  But you realize retirement is closer than you think, and you need to assess your investment strategy.

As you pivot from the accumulation phase to the preservation phase, there are a lot of factors that you want to consider.  Change direction too early, miss out on the last bit of growth and compounding.  Too late, and a market downturn can set you back while you wait for it to come back.

General rule of thumb, this pivot can be anywhere from 5 to 10 years before you plan to retire.  That is a vast range, so here are a few questions to consider:

  • Are you under, at, or above your savings goal?
  • Are you heavily relying on these retirement accounts to live off?
  • Do economic and market conditions suggest you should be more aggressive or conservative?
  • Can you use a different strategy with your qualified and non-qualified accounts based on when you will use them in retirement?

The reason this matters so much is you don’t have the luxury of time to repair any significant losses. A downturn can take longer to come back from.  This could cause panic, and then potentially make decisions based on emotion.  When you were younger, you had time on your side. Now that retirement is near, time is short and any unnecessary risks can cause real damage to your hard work.

How you adjust your investment strategy is important.  You shouldn’t just flip a switch from growth to preservation, this is something you can do over time.  The gradual decline will still allow you to capture some of the gains, while dropping the amount of risk that you have in your portfolio.  Taking these smaller steps will allow you to react to the market as well. 

Again, even talking about a gradual pivot does depend on your circumstances based on the above questions.  I think it is natural as we age is to take risk off the table, so this may happen anyways. Goal isn’t just to be more conservative, it’s to make sure your money is positioned to support how and when you’ll actually use it.