By Harriet J. Brackey
August 1, 2016

The moment people retire, I’ve found, their perspective on their portfolio suddenly shifts. For 40 years they were long-term investors, saving for tomorrow. But instantly they’re thinking only about the present, and they’re hyper-focused on risk. They turn terrified overnight.

This transformation can pose a problem. New retirees may decide that the payoff of growth isn’t worth enduring the market’s ups and downs, so they invest too conservatively. That will hurt them later on. If your portfolio doesn’t grow, inflation will eat up the income you thought would support you forever. You have to live with risk. You can’t wish it away. So what can you do?

A policy is the best policy

A solution I’ve found useful is to set up what’s known as an investment policy statement—a document that describes what you want your money to do for you and how it should be handled. The investment policy sets out your goal for your portfolio (such as “To fund my day-to-day retirement expenses”). It specifies how you want to divide your investments between stocks and bonds or domestic and international assets, along with acceptable ranges (for example, you might want 20% in U.S. large-cap stocks, but let that float between 15% and 25%). It should also include how much you want in cash.

Putting these choices in writing acts as a wall to separate emotional reactions from thoughtful plans. On dark days in the market, you can retrieve the policy statement and ask yourself if anything about your financial goals or investment targets has really changed. Just reviewing the document can redirect your thinking from today toward your long-term plan.

Change can be good

I don’t mean to suggest that once you create an investment policy, you can’t alter it. Let’s say your initial focus is on keeping costs low, so you assemble a portfolio of index funds. If those indexes start swinging widely, volatility and risk may become a bigger concern. In that case, you could adjust your policy—for example, by replacing some of the edgier funds in your portfolio with low-volatility exchange-traded funds that happen to have higher expense ratios.


Remaking the terms of your policy is not the same thing as making panicky decisions. An investment policy takes work. As you write it, you bob and weave between what markets can do and what you can stand. You find the reasons for establishing the portfolio in a certain way. The policy becomes the reason you won’t make a blind rush to the exits.

You can’t control the markets, but a policy statement can help control your reaction to them. So write one up. It represents the most important deal you make when you invest: the deal you make with yourself.

Brackey is a certified financial planner based in Fort Lauderdale.

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