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Why Building Wealth and Keeping It Are Two Different Things

In last week’s video we discussed the importance of saving, and how building a nest egg involves regular contributions over a long period of time. Investing in equal portions at regular intervals, like you would in a 401k, allows you to buy more shares when the market is down, and when the market is going up, you have more shares working in your favor. That’s what’s known as Dollar Cost Averaging, and it can work very well over time. 

So, if systematic deposits plus time may be a great way to build wealth, does that also mean that doing the opposite in retirement – taking systematic withdrawals over time – is also a good thing? It can be – right up until the markets go down. And then you’re courting disaster. 

It turns out that building wealth and keeping that wealth are two entirely different disciplines, requiring two different sets of skills. 

Building a nest egg requires taking some measure of risk, which we try to mitigate with the element of time. But keeping that nest egg requires the opposite of taking risk. It requires some combination of frugality, humility, and fear that everything could implode tomorrow for reasons we never saw coming. 

We’re optimistic over long time periods that our investments will go up, but we know that in the short term, the road will be chock-full of potholes, landmines, and unforeseen disasters.  

If we could sum up what it means to maintain your nest egg in retirement in one word, it would be this: endurance. 

You need the ability to stick around for a long time, to hang in there during all the short-term ups and downs. If you’re able to do that, if you know you can survive the short term, then you won’t be greedy during the good times, and you won’t be fearful during the bad times. This survival mentality is crucial to keeping your wealth in retirement, because the mysterious, marvelous math of compounding can only work if you give an asset many years to grow. 

And this, as you may have guessed, is why we use our Bucket Strategy. It’s designed to give your portfolio the endurance it needs to survive. Yes, you need your money to be there tomorrow, next week, next month, and next year. But you’ll also need it to still be there decades from now, because who knows how long you might live?  

Short-term liabilities, those bills you have to pay every month, are covered by short-term assets in a Bucket Strategy: cash, CDs, money markets, etc. No matter what gyrations the stock market is going through at any given time, your cash flow from that short-term bucket will not be affected. You won’t get a great rate of return, but we really don’t care. That money cannot be put at risk. 

Having the short-term liabilities taken care of gives us the long time period we need to mitigate the risks of the stock market, which is where we’ll put the money we don’t need to touch for the next 15 years or so. The daily up and down movements won’t bother us, because we’re optimistic that over 15 years this bucket will grow. That’s not guaranteed, but if history is any guide, we can be confident that it will. 

It’s important to keep in mind that building wealth and keeping wealth are two different things. You need to have a strategy for both. It’s what we do every single day for our clients here at Lucia Capital Group. How can we help you the most? Just give us a call. 

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the information presented serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group or from any other investment professional.

You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

A dollar cost averaging strategy does not guarantee a profit or protection from loss. Since such an investment plan involves continual investment in securities regardless of fluctuating price levels, you must consider your willingness to continue purchasing during periods of high or low-price levels.

CDs are FDIC insured up to $250,000 per depositor, per insured bank, for each account ownership category.

Money Market mutual funds, though traditionally lacking federal insurance and not without risk, are highly regulated under federal law.

Before investing, carefully consider a mutual fund’s investment objectives, risks, charges, and expenses. To obtain a prospectus or summary prospectus, which contains this and other information, call your financial advisor. Read the prospectus carefully before investing.

Rick Plum is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.

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