Red, blue, green — maybe? It might be time to learn what these colors mean when it comes to your retirement account.
Throughout your working years, you attempt to accumulate as many eggs as possible into your retirement nest. Unfortunately, many of us focus our energy on HOW to accumulate a large retirement nest egg … without giving any thought as to WHERE the assets should be invested.
Do you have your money in assets that represent the level of risk or safety you want?
One of the easiest ways to determine where you should have your assets allocated is to color code your finances based on what is at-risk, what is protected and what is readily available.
To put this concept into practice, imagine you have three buckets.
(1) The at-risk money is Red. (2) The protected money is Green. (3) And the Blue Money contains three to six months’ worth of living expenses — which is always available but has no real chance of gain.
Now, let’s calculate exactly how much money you have in each bucket by drawing three columns on a sheet of paper and labeling them Blue, Green and Red.
If an investment can lose value, put that in the at-risk column. Red money provides growth opportunity, but it’s 100% at risk.
Anything in the Green Money column provides safety and guarantees. This is your SERIOUS money. The growth potential is less than Red Money, but you’re comfortable knowing these assets are safer and your principal is 100% protected against loss because it’s not subject to stock market risk.
The Blue Money column is about cash and liquidity. You can easily access Blue Money and spend it when you want and need it.
Using the Color of Money method, you’ll quickly see where your money is today — and where it needs to be. You’ll understand how much of your money is at risk — how much is protected —and how much you have in the bank for rainy days and emergencies.
Blue money is money we all know.
It’s money in the bank.
It’s safe but provides little opportunity for growth.
You’re losing to inflation on this money.
It’s your checking and savings account.
It’s your CD at your local bank.
It’s your money market account.
It’s your treasury notes and savings bonds.
You can easily access Blue Money and spend it when you wand and when you need. Blue Money is for emergencies.
Green money is designed for GUARANTEES.
There may not be as much growth potential when compared to some market returns, but you can be assured that your account will never go down.
Green Money is PROTECTED money. You’re not susceptible to market declines — and you keep Uncle Sam out of your retirement plan!
It’s your Roth IRA.
Did you know that permanent life insurance has similar benefits to a Roth IRA?
Red Money is assets that are invested and exposed to RISK OF LOSS. They provide an opportunity for GROWTH.
It’s your 401K and Traditional IRA.
It consists of stocks, bonds, mutual funds and any other investment that you need to use caution in the investment world. It’s 100% at risk.
Your ultimate goal is to have your account value grow — but we all know the outcome is completely unknown with NO guarantees.
Will Rogers was the first to wittily say “It is easier to lose money than it is to make it!”
That’s not a catchy tagline — it’s a mathematical fact. For example, if you have $100 and lose 10% of it, it will take an 11% rate of return to become whole.
What if you lose 50%? What rate of return would you need to make your money back?
The answer is an astonishing 100%.
The stock market is going to tank at some point. Whether that happens next week, next month, or next year is anyone’s guess. Is most of your money Red? Is it time to to consider de-risking your SERIOUS money — money you cannot afford to lose?
