Are you on your way to building a retirement nest egg?
Do you want an investment strategy that provides a lifetime of reliable retirement income while maintaining the potential for growth to protect against inflation? You should consider adding a waterfall investment strategy to your financial plan. A waterfall investment strategy enables you to automatically shift your asset allocation over time to match your risk tolerance and changing financial circumstances, while always allowing the flexibility to adjust the plan if necessary.
This will enable you to:
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Shift from an accumulation to a decumulation strategy gradually, allowing your money to continue working for you while protecting your income stream when you need it.
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Control your exposure to market risk by systematically transferring your capital into investments with reduced equity exposure as your investment time-horizon shortens over time.
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Allocate your investment capital between diversified portfolios representing a strategic mix of risk and return profiles.
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Protect 1-3 years’ worth of income within a conservative, short-term income-producing investment to fund monthly cash flow requirements in retirement.
How it Works
Long-Term Investment Solution
Your long-term investment solution typically provides 100% equity exposure to maximize your return potential. On a set basis, a predetermined amount is sold and then transferred to the medium-term investment solution with reduced risk exposure. A suitable long-term investment solution is the IPC Focus Equity Portfolio, which aims to achieve the highest potential for long-term growth. The Portfolio focuses on large-cap stocks and is overseen by specialized investment managers with proven track records in selecting growing companies.
Medium-Term Investment Solution
The medium-term solution typically consists of a balanced investment portfolio that provides you with a consistent income stream with growth potential, reduced volatility, and more predictable returns. Two examples are IPC Visio Balanced Income Pool and IPC Global Income & Growth Portfolio. Both investment solutions pay a fixed monthly distribution that can be automatically invested in the short-term investment.
Short-Term Investment Solution
The short-term investment solution typically consists of a conservative, low-risk investment that provides regular distributions that to help meet monthly cash flow requirements. One example is the IPC High-Interest Savings Fund. The Fund protects capital from the impacts of market volatility since it has no correlation to equity or bond markets and is comprised of 100% cash & cash equivalents.
Waterfall Investment Strategy in Action:
John, age 35, wants to establish an investment strategy with the goal of providing income for life when he retires at age 65. He earns an excellent income, and due to his long-term time horizon, is willing to take on some risks to grow his wealth. John agrees to his Advisor’s recommendation to implement a waterfall strategy by allocating 30% of his capital to the long-term investment solution and the remaining 70% to the medium-term investment solution.
At age 55 and with retirement just on the horizon, John agrees to his Advisor’s recommendation to reduce the amount of risk he is taking. Accordingly, the allocation of his strategy is changed to 20% long-term investment solution and 70% medium-term investment solution. This is accomplished gradually and systematically with a predetermined amount being moved from IPC Focus Equity Portfolio to IPC Visio Balanced Income Pool on a monthly basis. With the remaining 10%, John’s Advisor begins to move capital from the medium-term investment solution to the short-term investment solution to start building a basket of savings he will use to generate an income stream during retirement.
At age 65, John retires. To help reduce the overall risk in his investments while he begins to withdraw regular income payments, the allocation of his waterfall investment strategy has changed to 10% long-term investment solution, 60% medium-term investment solution, and 30% short-term investment solution, reflecting how John’s investment allocation has changed over time. This will help ensure John has up to three years’ worth of income payments secured within a low-risk investment. The remaining 70% remains invested in a combination of income and growth-oriented securities to continue growing his capital to help offset inflation.
By adopting a waterfall investment strategy early in his financial plan, John has managed to grow his savings by allocating a larger share to equities while he was young, and gradually building a secure pool of capital that can be used for retirement income after age 65. His investments will continue to grow to help offset inflation since 70% remain exposed to investments with growth potential. And finally, John will feel secure knowing he has approximately three years of income payments saved in a secure investment that pays monthly income for funding his day-today expenses in retirement.
Waterfall Investment Strategy: The Flexibility to Adapt to Your Changing Needs
Wealth Accumulation
Implementing a waterfall investment strategy using a tactical combination of short-, mid-and long-term solutions, can help you capitalize on market appreciation while offsetting the effects of short-term market volatility to ensure your funds are both growing and protected for your retirement.
Retirement Income
As you approach retirement age, you’ll need to secure enough income to meet your immediate and short-term (1-3 years) expenses. Securing your savings in a low-risk, income-producing investment provides you with a sense of security knowing your short-term income requirements are protected from market volatility. Speak to your Financial Advisor today to learn how implementing a waterfall investment strategy can help you achieve your long-term investment goals.