fi nancialforum Portfolio Plan Y
Consult an Expert Please consult a practic- ing financial professional for assistance. MOAA staff does not practice financial planning. We provide general educa- tion and counseling, not personal financial recom- mendations or advice.
46 MILITARY OFFICER NOVEMBER 2015
In the fi nal part of a two-column series on market correction, Lt. Col. Shane Ostrom, USAF (Ret), CFP®, off ers seven tips for managing your portfolio based on risk and objectives.
Your financial plan shouldn’t require constant oversight and adjustments based on current market conditions and predictions. Instead, have a fi nancial plan in place that considers both the risks and your objectives. Here are several tips: 1. Separate blocks. Have separate portfolios segmenting your future into three blocks of time. The fi rst block is a stable value ac- count for the immediate future, three years out. This is a money market or savings account or very short-term certifi cates of deposit laddered to mature quickly. The second block of time is four to six
years out. This block has enough assets to resupply your fi rst block income someday, which allows more time for money to grow by using appropriate higher-return instru- ments. Appropriate instruments here are aff ected minimally by market variations. The third block is money for the longer
term, seven-plus years out. A portion of it will become the second block as the sec- ond block is shifted to the fi rst block. This money can withstand a stock market drop because it has time to recover. 2. Diversified portfolio. Use a variety of investments that react to various market conditions in their own ways. This way, when the stock market declines, other in- vestments don’t react to the stock market in the same ways — they counterbalance. You won’t capture the highs or lows of the stock market but a smoother path between. 3. Pensions. Use some assets to purchase an immediate annuity. Drop a lump sum
into an immediate annuity and receive lifetime guaranteed income for you and a survivor if you wish. 4. Bond ladders or other bond strategies. Buying individual bonds and holding them until maturity eliminates stock market and interest rate increase concerns. By varying the maturity lengths and types of bonds, you might be able to generate enough in- come to live on without tapping principal. 5. An income portfolio. An income port- folio will be aff ected by stock market volatility, but you don’t care because with this strategy, your focus is on the interest, dividends, and capital gains the investments pay. The share prices (and your portfolio value) of the investments will move with the markets, but you live off the income generated by the portfolio, not your principal. As long as you are not selling shares, their value doesn’t matter. 6. Income properties. If you are a property owner, you know there are two ways to view your ownership. You either plan to sell one day and market values matter to you, or you focus on their income potential and market values don’t matter as much. 7. Insurance options. Some insurance and annuity policies with income riders could meet some of the objectives dis- cussed in this article.
MO
— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit
www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to
beninfo@moaa.org.
PHOTO: SEAN SHANAHAN
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