PANEL ONE: EMERGENCY FUNDS AND RISK
01.Core Concepts
MANAGEMENT PORTFOLIO-RELATED RISKS (2 of 4) • Inflation tends to have a higher impact on portfolios heavily invested in fixed-income • Social Security income receives a cost-of-living (COLA) each year. • Assets such as stocks and real estate can provide a hedge against inflation. • Treasury Inflation Protected Securities (TIPS) provide inflation protection • Principal amount of the bond is adjusted every six months based on CPI-U. • Creates an increasing coupon payment • Annuities that can be annuitized later in life • Reduces risk of superannuation PANEL ONE: EMERGENCY FUNDS AND RISK MANAGEMENT PORTFOLIO-RELATED RISKS (3 of 4) • Market fluctuations • Market risk is the risk that in the short term, the daily fluctuations of the market. • Market risk can be diversified (reducing the risk) but it comes at the cost of not keeping up with inflation. • Psychological risk associated with market fluctuations • Variations in total value of a portfolio may make retirees uneasy. • Sequence of returns risk • Refers to the possibility that the investment returns in the first several years of retirement can have a str ong positive or negative impact on the likelihood of the portfolio successfully providing income throughout the client’s lifetime.