You don’t need to change the way you invest just because you retired – 05/17/2023 – From Grain to Grain

We’ve all heard that those who retire should change their way of investing, usually to a more conservative one. This old advice seems to make perfect sense. However, it is not the act of retirement that should change your way of investing.

Readers of this column already know what needs to be done before deciding on the distribution of their investment portfolio.

Undoubtedly, retirement represents a big change, as at this time you tend to stop receiving an income from some work.

However, if it was well planned, you start to have income from another source.

Eventually, your portfolio could and even in some cases should be more aggressive at this time. It all depends on one factor: your planning or lack thereof.

The first step in deciding how your investment portfolio should be distributed at any point in its lifecycle is to create an investment plan.

This plan must contain at least four elements: one or more objectives, the starting point, the investment term or horizon, and risk and liquidity constraints.

For example, if you are 35 years old, one of your primary goals should be retirement.

Many think that planning for retirement is something to do only after you have a property, a car and other assets. It is common for individuals to get bogged down in financing to anticipate all their dreams and live the nightmare when they most need to rest, that is, in retirement.

If this 35-year-old young man has planned his retirement and disciplinedly followed the plan, when the retirement date arrives, the way to invest is a simple continuation, as the plan for the following years has already been built.

The plan is like a road that you walk along. However, the path does not need to change course when retiring, as it has already been traced. It is not necessary to make a curve on this road if the plan is proceeding as expected.

Yes, it is common to plan lower returns on investments in retirement for two reasons. First, retirement is often far away and it is wise to be conservative in planning for future returns.

Second, your ability to withstand volatility may change when you lose the security of an income. But in this case, she will not suddenly change. The proximity of retirement should already provoke this change if it is the case.

However, imagine that you spent 20 to 30 years investing in products that provided an average return of IPCA+6% per year. Why are you going to sell all your investments overnight and switch to a portfolio that yields IPCA+4% per annum?

If you have assets that provide a higher return, this additional profitability will serve as support or guarantee for less favorable moments or lower rates that may happen in the future.

Therefore, you don’t necessarily need to change the wallet with a date, for example, the date of retirement.

The most appropriate thing is to frequently re-evaluate your portfolio and check whether it is capable of following through with the originally constructed plan.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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