From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(November 30, 2004) — Investing adequately and regularly, diversifying your portfolio and keeping tabs on your investments are keys to managing a retirement savings portfolio. To help you put these principles into action, the Virginia Society of CPAs suggests that you address the following eight questions.

1. Do I have a plan in place for investing regularly?

The key to a successful retirement saving strategy is to make systematic investments throughout your working life. The easiest way to do this is to make saving automatic. If you have an employer-sponsored retirement plan, your contribution may be deducted from your paycheck, so you can save regularly and easily. If you don't have a workplace plan, consider setting up an individual retirement account (IRA), Keogh or Simplified Employee Pension (SEP) automatic investment program with a bank, brokerage or mutual fund company.

2. Am I investing for long-term growth?

Just as important as investing regularly are the investment choices you make. Retirement saving means investing for the long term. Historically, stocks have had the best chance of achieving high returns over long periods. Over the years, inflation can erode the purchasing power of portfolios that are too highly weighted in bonds and certificates of deposit (CDs). Keep these facts in mind as you determine the best way to allocate your assets.

3. Do I know my tolerance for risk?

Risk is the price you pay for potential return. Generally, the more risk you take with your money, the greater the potential return or loss. However, the less risk you take, the lower the potential return and the lower your risk of loss. An honest assessment of your risk tolerance leads to a successful asset allocation strategy.

4. Do I have the right asset allocation?

Asset allocation is the cornerstone of good investing. In fact, how your money is divided among the different classes of investments — stocks, bonds and cash equivalents — can have a more significant impact on your return than the actual stocks and mutual funds you choose. Remember, no one mix of assets is right for everyone all the time. Each investment you select should be part of an overall asset allocation strategy that is tailored to your specific goals, risk tolerance and financial situation.

5. Is my portfolio diversified?

Diversification is a risk management technique that takes asset allocation one step further by ensuring a balanced portfolio within each asset category. This is especially important in your stock portfolio. Your stocks should represent different sectors, industries, companies and geographic areas. In your fixed income portfolio, you can further diversify by structuring your investments so that they have differing maturity dates.

6. Do I have sufficient liquidity?

It’s generally a good idea to set aside a portion of your retirement savings in a money market fund or savings account. Should you find yourself in an extended bear market, you can withdraw cash from your liquid investments rather than sell off assets at an inopportune time.

7. Am I monitoring and rebalancing my portfolio?

Active, regular portfolio review is essential for evaluating the performance of your investments and determining whether any actions are necessary. Monitor the companies in which you have invested. Bear in mind that as some asset classes perform better than others, your asset allocation can become unbalanced. For example, let’s suppose you allocated 50 percent of your savings to stocks, 30 percent to bonds, and 20 percent to cash. If, after 12 months, you notice that your stocks have grown to become 55 – 60 percent of your portfolio, it’s time to rebalance.

8. Who should I consult with to help me manage my portfolio?

Managing your retirement assets is a dynamic process that will evolve over the stages of your life. Be sure to consult with a CPA and a CERTIFIED FINANCIAL PLANNER™ professional to determine how to best fit your retirement savings strategy into your overall financial plan.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, Inc.

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

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