When youʼre up against a force as powerful as inflation, complacency is not an option.


Every dollar I put towards my future is a dollar less to spend on myself today. So, if Iʼm going to deny myself a day at the spa, I want to be darn sure that those saved dollars will maintain their purchasing power to buy me the same luxury experience in retirement.


Unfortunately, if I were to stash that cash in a jar labeled “retirement money,” or even in one of today's low interest savings accounts, the value would erode over time.


In other words, the price of goods is bound to creep up. The $4 that buys me a latte in 2017 is unlikely to afford me a full cup of my favorite beverage in 2037; likewise, in 30 years, a million dollars in cash will only buy me what roughly $400,000 will today (assuming an annual inflation rate of just 3%).

Investing for retirement can feel like a race to have “enough.” However, enough in todayʼs dollars and enough in 20-years-from-now dollars are distant cousins at best.


Thatʼs why you may need to step outside of your comfort zone.

Sadly, itʼs almost impossible to invest as a means of potentially growing your assets without taking on some risk. Itʼs the prospect of volatility that gives “risky” assets like stocks higher potential long-term returns than “risk-free” assets like treasury bills. Market fluctuations can keep people up at night, but itʼs those upward spikes that can enable an investment to provide returns meaningfully higher than inflation.


Why risk-taking can feel unnatural

Risk aversion had clear evolutionary advantages for our forebears. But what worked in an earlier point in human history may be maladaptive in todayʼs world, where inflation and longer lifespans can make well-chosen risk advantageous, for men and women alike. In todayʼs world, we arenʼt fighting off bears and tending fires, we are fighting inflation.


Though we know the statistics on plane crashes and air safety, a bumpy plane ride can be terrifying on a gut level. The same holds true for stock market turbulence. But remember, the stock market typically moves in cycles, and if we experience some serious turbulence in the coming years, it wouldnʼt be out of the ordinary. If you want a guaranteed smooth ride, you may not reach your destination, be it a desirable Pacific island or a desired financial endpoint.


“The 2007 crash ruined my retirement”

I have heard this story, in varying forms, from many investors who lost money (and sleep) due to the Great Recession. But in many cases, it was the lack of a properly constructed portfolio—with an asset allocation appropriate to her life stage—that negatively impacted someoneʼs retirement.


When the market dipped, the ones who suffered the most were the retirees and near-retirees who had to sell their investments (low), because their assets hadnʼt been allocated, age-appropriately, among stocks and bonds to help reduce volatility. In my opinion, if you know you might need to spend a portion of your savings in the next 5-10 years, you shouldnʼt be investing it in risky assets but rather, keeping it in cash or cash equivalents.


Your asset allocation should be based on your cash flow level, as well as your age, risk tolerance and goals. People retiring in 2007 were to some degree protected from the dips in their 403(b) balances, if they had a sufficient enough cash flow to avoid the necessity of dipping into their accounts; savers who could afford to wait until the market bounced back, were in a stronger place.


Younger savers with a more distant time horizon are also well placed to take on risk. Likewise, a tenured professor is probably in a better position to withstand volatility than someone without that stable source of income. In both cases, an investment strategy that incorporates an age- and lifestage- appropriate amount of stocks, may potentially keep pace with the rising cost of goods and services. Investing involves risk and you can lose money. There is no assurance that the goals will be met or that the solution or strategy will be successful. There is no guarantee that asset allocation reduces risk or increases returns.




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