August 31, 2021
Frank Mastrapasqua, Ph.D.
Principal, Chairman & Chief Investment Officer
Retiree: What’s the Risk?
One of the first questions a person nearing retirement often asks is “Will I outlive my money”. One can determine the amount of assets a person needs given their particular lifestyle as well as other sources of income (i.e. social security etc.). However, the ability to answer that question properly rests upon the nature and return from the invested assets and the performance of those assets in a changing economic environment. For example, how will the portfolio do in an inflationary setting? Have expenses been adjusted to account for the higher cost of living?
Many financial advisors aim for the lowest common denominator to achieve an outcome, with the intention of doing so with the lowest possible risk. However, in a changing environment, particularly transitioning to a higher rate of inflation, that approach may actually increase portfolio risk. Consequently, the portfolio may well be struggling to achieve its goals.
Building an asset allocation model that utilizes a sizable bond component to mitigate risk often does not adequately take into consideration the inherent risks that exist in bonds. Without the benefit of experience and history, many financial advisors and investors might assume a level of stability in bond prices and yields that in reality may only be a temporary phenomenon.
In an environment that we have now – inflation reemerging and bond yields near historic lows – achieving one’s goals requires a dynamic approach to asset allocation with an emphasis on an asset class or classes that adjusts to a changing pricing structure (i.e. equities).
In the coming weeks we will discuss the different risks that permeate the bond market and the difficulty an overburdened bond weighting can have on portfolio returns and ultimately your goals and wealth.
Mastrapasqua Asset Management, Inc. does business as M Capital Advisors. If you have a question or need further information, please contact:
Edwin Barton, Principal, Portfolio Specialist & Head Trader in Nashville at 615-255-9898, firstname.lastname@example.org
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, email@example.com
© 2021 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.