Investment Mix

As a part of investing for a retirement plan, one of the key issues is what mix of investments you will create to achieve your retirement goals.  Most investments have risks, some more than others.  One viewpoint is to look at expected risk adjusted returns - or how much you expect to gain versus what is the corresponding risk with that particular investment.

For most investors planning for retirement, their investment mix should be weighted more toward conservative investments.  The following is a list of investments groups:


  • CD's
  • U.S. Treasury Bonds
  • Grade A Municipal Bonds
  • Quality Corporate Bonds
  • Annuities
  • Variable Universal Life Insurance
  • Guaranteed Return Life Insurance


  • Stocks
  • Covered Calls
  • Exchange Traded Funds (ETFs)
  • Real Estate Investment Trusts (REIT's)

There are many other choices and the above can typically be purchased individually or through a mutual fund. Regardless of the choice in mix, it is typically valuable to blend multiple types of investments and to create a risk balance investment mix that meets your objectives.

In many studies it has been shown that this mix is often more important than which individual investment is selected.


Retirement Planning

This normally means the setting aside of money or other assets to obtain a steady income at retirement. The goal of retirement planning is to achieve financial independence, so that the need to be gainfully employed is optional rather than a necessity.
The process of retirement planning aims to:


  1. Assess readiness-to-retire given a desired retirement age and lifestyle, i.e. whether one has enough money to retire; and
  2. Identify actions to improve readiness-to-retire.

Tax Deferrals

Tax deferral refers to instances where a taxpayer can delay paying taxes to some future period. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particularly for deferral of income taxes. It is a general fact of taxation that when taxpayers can choose when to pay taxes, the total amount paid in tax will likely be lower.

One example is the use of qualified retirement accounts that allow the taxpayer to delay paying any tax on the contribution or on any gains until assets are distributed from the plan.  Accounting treatment for accelerated asset depreciation and amortization results in reducing income taxes in the early years of the asset ownership.

Risk Adjusted Return

Risk Adjusted Return is a term often used in determining how much return should be expected, based on the volatility of the given investment asset.  As this applies to purchasing a business, this expected return is calculated as the capitalization rate (the discount rate) that is used in the Discounted Cash Flow method of valuing a business.

As the concept is applied to Portfolio Management, this refers to measuring the risk versus the expected return of a given investment alternative. This is typically measured by the Sharpe ratio, which divides the excess of the expected asset return over the risk free rate of return by the standard deviation of the excess of the return. The higher the number the better.