Sunday Vibes

MONEY THOUGHTS: Money lessons from a (metaphoric) barbell

"FALLING off the wagon" usually refers to ex-alcoholics returning to their sozzled ways. While I don't drink alcohol, there is a version of falling off the wagon — repeatedly — which applies to me. When it comes to exercising regularly, I have, at best, a patchy record.

I've fallen off the exercise-regularly-wagon many times when, through apathy, indolence or busyness, I've abandoned serious seasons of running or swimming or weight training for years at a stretch. Thankfully, though, each of us can clamber back up onto the "wagon" of our choice at any time.

Recently, a discernible loss of strength in my legs motivated me to speak to my friend Adrian Loo — who is 30 years my junior and a thoughtful, motivatingly cerebral, physical trainer in Seremban — about beginning an exercise programme to try and rebuild some muscle mass in my creaking, ageing frame.

So far so good because Loo is prudent and skilled enough to only permit me to exercise safely. He has me stretch a lot and has taught me about foam-rolling to release tight kinks in my inflexible muscles. Also, in terms of resistance training, he guides me onto machine-based pushing and pulling, plus light dumbbell and barbell workouts.

In most gym settings, it is customary to see not only out-of-shape sedentary oldies like me, but also muscly men and women of all ages who have paid the price of success over years, sometimes decades. These impressive specimens tend to work out extensively with barbells much heavier than I can safely heave even a few inches off the floor.

PORTFOLIO BARBELL

There is another kind of barbell, though, which I wield comfortably every working day. Admittedly this "barbell" is a metaphoric mental construct, yet it has practical ramifications for many of my retired financial planning clients. It is the barbell structure of a retirement funding portfolio.

When exercising, our physical barbells must be equally weighted at either end to avoid accidents. But a portfolio barbell does not need, most of the time, to be symmetrically weighted.

Remember, we're dealing with a mental construct that allows for optimal portfolio management for retirees.

To figure out what goes at each end of a PB (portfolio barbell, in this specific context) we need to remember the two big concerns of most people approaching or in retirement:

1. Losing their purchasing power to inflation over the years; and

2. Creating sufficient passive income each month, quarter, or year to meet regular living expenses when their active income faucet from paid work dries up.

We try to grow our money faster than inflation erodes its buying capacity by investing in asset classes or asset segments like equities, investment real estate and commodities that stand a fighting chance of growing over the long haul — say over time horizons ranging from seven to perhaps 40 years — at a CAGR or compounded annualised growth rate above inflation's long run yearly rate. The investments that attempt to deliver such results are focused on capital gains.

In contrast, to generate first a trickle and then a stream and finally a deluge of passive income at the other end of our PB, we set aside money in savings and investment vehicles that generate passive income most commonly in the form of interest, dividends, cash distributions, and rental.

Earlier, I mentioned that a PB rarely needs to be symmetrically balanced the way a physical barbell should be. That's because when we're young, say in our 20s and 30s, our focus should be on having a higher percentage of our nest egg weighted on the capital gains (CG) end of our metaphoric PB. And when we're older, perhaps in our 60s and 70s, the bulk of our nest egg should be sitting at the passive income (PI) end of our PB.

In our prime earning decades, usually in our 40s and 50s, it makes sense to implement a gradual sliding scale between our CG and PI weightings. Remember, CG percentage PLUS PI percentage = 100 per cent, always.

Over the last several years of my financial planning practice, I have noticed a skyrocketing surge in client queries on how I might use prudently structured PBs to create self- (client-) funded private pensions for them.

WISE PLANNING

As this is my 400th Money Thoughts column, which is to me a major milestone (thank very much you, New Sunday Times and Sunday Vibes!), I wanted to share with you this valuable mental construct — our metaphoric PB — to help you think through your own long-range plans for a gleaming retirement.

You might choose to begin the process of structuring your personal PB on your own using a D-I-Y approach, or with the help of a licensed financial planner. Given the dire state of most Malaysians' retirement funding plans, though, what's most important is starting ASAP.

As with building physical strength and gaining muscle mass through exercise, beefing up financial vigour and attaining lifelong fiscal stamina through wise planning and implementation require one non-negotiable trait:

Paying the price for success, again and again. There is no viable shortcut.

© 2023 Rajen Devadason

Rajen Devadason, CFP, is a securities commissioned-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).

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