THE KEY TO SOUND FINANCIAL MANAGEMENT

Everyone wants three things out of every investment: high growth, full liquidity and no risk. Unfortunately, nobody can offer all three in a single product. As we go through life, people transition through certain financial phases. Each of these phases has certain characteristics that dictate how money should be managed. While subject to variation based on individual circumstances, these phases are as follows:

Accumulation Phase
During a person's working years, he/she should be saving for retirement. Because a younger person has a long investment time horizon and the ability to live off current earned income, he/she can tolerate some measure of risk and without the need for liquidity. As such, he/she can use investment vehicles that offer very high growth potential.

Consolidation Phase
As that person approaches retirement, it is generally recommended to begin backing away from the higher risk instruments that may have been appropriate at a younger age. In other words, what was a good idea at 30 or even 40, it is not appropriate for a 55 or 60-year old looking to retire in five or ten years. At this phase, it is time to start capturing and preserving gains that have been realized over the Accumulation years. In essence, this person is starting to exchange high growth for less risk.

Distribution Phase
At the point of retirement, many people find they need retirement income in addition to what they receive from their Pension and Social Security. This is the time to convert some of the investments from growth to payout. At this point, it is essential that the underlying risk is reduced to zero. If a person relies on a fixed amount of income that is derived from a fluctuating account, the first time the account loses value due to poor performance, the account could be doomed to depletion ahead of schedule. Simply, that person is now exchanging growth and risk for safety and liquidity.

Each of these phases is benefited by a precise but large range of products and financial strategies. With rare exception, the product or strategy that was most suitable for one phase will not be the best recommendation for the others. Unfortunately, most financial advisors fail to fully recognize or appreciate these facts and it is common to see 70-year olds managing their money exactly the same way they did when they were 40.

At AIN, we make recommendations based on what is most suitable for you at your current station in life, regardless of which life phase you are in.