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CHARACTERISTIC – In New Mexico, it’s not uncommon for someone ordering Mexican food to be asked, “Red or green?”
Indeed “Red or Green?” was adopted as an official state question in 1999. (Did you even know there was such a state issue?) Chile is the fiery soul of New Mexican food, and everyone there has their opinion on which chili sauce goes best with which dish.
I like to ask my clients and prospects the same question about their retirement plans: “Do you prefer green money or red money?”
I define “red money” as that portion of savings that a person is willing to expose to market risk. With red money, you accept the possibility of losses, even significant ones. With our current low interest rate environment penalizing savers, the desire to chase aftermarket profits is perfectly understandable.
Still, risking your life savings in hopes of (often mythical) higher returns may not be the ideal decision for those approaching retirement. Because when you go red money, your wealth is exposed to both upside and downside risk.
On the other hand, “green money” is the part of your savings that you want to secure. Green money is cash used to create income streams that give you greater security and peace of mind. Green money is for those who are not willing to take even small losses. Instead, green money people add products that offer lower returns in exchange for little to no market risk. Real green money has no downside risk and only upside potential.
Choosing red or green is not black and white. Despite what you may have heard from your advisor or a TV money guru, neither red nor green money is inherently bad or good. After all, you are an individual with your own risk tolerance and unique money goals. What you need your savings for when you retire may be very different than what your friend, neighbor or co-worker needs.
Knowing this, you shouldn’t be asking, “Which is better, red money or green money?” but rather, “What percentage of each type should I have in my portfolio to meet my goals?” How much of my cash am I comfortable putting at risk? Ultimately, what is this money supposed to do for me?”
If you want to move forward slowly and consistently, instead of getting caught in a cycle of two steps forward and three steps back, you need to look at products that can help you along the way.
For example, certain types of life insurance and annuities offer you the opportunity to have a predictable income in retirement with little to no risk. Exploring your safe money options is not only prudent, it is necessary as we continue to experience market turmoil and a precarious and unpredictable economy.
Successful retirement requires knowing what percentage of risk you’re most comfortable with, how much you can afford to lose during a market downturn, and what you want to achieve with your wealth.
How much red or green money to put in your portfolio is an important decision every retiree must make. An experienced retirement planner can help you make that decision and ensure that every dollar you spend is doing the work of three or four.
Copyright © Lyle Boss, all rights reserved.