I generally abide by a Ten Year Rule, meaning if an investor knows he’ll need to tap his savings to cover a spending need — be it education costs, home purchase, or retirement living expenses — I recommend investing that money in fixed-income investments to protect the principal.

I want to ensure the money is there when an investor needs it; therefore, I recommend investing in U.S. Treasury bonds, bank CDs, or high-quality municipal bonds. Although these “safe” investments can lose money, they are not as likely to do so compared to common stocks. Furthermore, I do this for 10 years — every year, I’m looking 10 years into the future, estimating and providing what an investor may need from his portfolio.

At 10 years before your retirement, you should be thinking about the day you quit working. For many, that is almost inconceivable. Most workers in that 55 to 65 age brackets are in the prime of their careers, likely earning their highest salary. They’re also likely in a position where their obligations are low — they have nice houses and cars; the kids have or will soon graduate from college, and luxury vacations are affordable. Now their investment adviser is recommending they buy bonds.

Bonds are earning less than 2 percent. That’s hardly something to brag about on the golf course. However, the reason I recommend this is because the current market is still near its all-time high. Remember what your high school economics class taught: buy low, sell high. So now is the time to sell. Move the money you’ll need 10 years from today to investments that will protect the principal. The following year, if the market is still in a good position, do the same, setting aside money for your second year of retirement.

You can still invest aggressively with the new money you’re saving with each paycheck. You trim the positions where you have large gains. If your favorite Technology stock was up 80 percent last year, it’s likely a larger portion of your portfolio than it should be. Trim it back to a more reasonable level.

I also recommend you start this liquidity planning in your after-tax investments first. You should let your tax-deferred investment, like your 401(k)s, IRAs, and even Roth IRAs, grow for as long as you can. IRAs and 401(k)s will be tapped soon enough at age 72 when you are required to take minimum distributions.

If the market were to dip — and it will dip — you can wait before you need to sell your equity investments. The average recession lasts roughly 18 months. If you have 10 years’ worth of money to live on, you are not forced to sell during a time when your portfolio may be down to generate cash. If you’re still working and investing, you’re also buying low. Nice how that works out. When the market rebounds, you can resume moving money into fixed-income investments.

By the time you retire, you should have 10 years of money set aside. Once you are no longer drawing a paycheck, you have peace of mind that you have money to live on for 10 years. Each year, you should continue to trim your winners and keep the liquidity bucket full for the future.

Maybe you should be bragging about your bond portfolio on the golf course.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.

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