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Guarding Your Wealth for Seniors
Strategies To Boost Growth in Retirement Investments
Keep your investment nest egg growing even after you retire
By Jeffrey D. Voudrie, CFP
March 30, 2006 - You should continue to grow your
nest egg even when retired--unless you’ve been blessed with more money
than you will ever spend! Last week I discussed in detail how retirees
can boost their income without taking on unnecessary risk. This week,
I’ll explain ways you might safely grow your portfolio while minimizing
risk.
I believe that higher returns can be achieved with
less risk when the strategies used to invest in the stock market are
tailored to market conditions. Unfortunately, few advisors recognize
this need and leave their clients to ride the roller coaster of worry.
The traditional approach to growing a portfolio
involves allocating a portion of the assets to large, medium, small and
international stocks. The appropriate mutual fund is chosen and it is
expected that once you put your money into it that you will keep it
there for 5-10 years. Making changes prior to then, this approach says,
reduces your chances of doing well.
This philosophy is based on the idea that stock
market performance will be consistent with what it’s done in the past.
If large company stocks have averaged 10% over the last 50 years, they
should average 10% in the future. And they may. But the question is how
long will it take?
There may be extended periods of time where the
markets perform significantly above their historic averages (the late
1990’s) and times when the stock markets perform well below their
average (2000-2002). The buy and hold strategy is a valid strategy.
Everyone should use it for a portion of their portfolio. That doesn’t
mean that I want to rely on it when the economy is in recession!
If you are retired or near retirement, you can’t
afford to base the safety of your nest egg on the hope that the markets
will someday revert to their mean. That’s why so many are uncomfortable
investing in the stock market. That’s why we’ve heard so many horror
stories.
You can achieve the growth you desire while
limiting your downside loss to less then 10%. The key to doing so is
matching the strategy used to present market conditions. People lost
money in the stock market from 2000-2002, not because there was a
problem with the markets, but because they were relying on a strategy
that works poorly in those conditions.
There is no such thing as a perfect strategy. Each
has strengths and weaknesses. By analyzing the type of markets that
should exist the next few years, you can then deploy those strategies
designed to work best in that type of market. Don’t put all your eggs in
one basket, though. I will bias a portfolio toward a particular
strategy, but I utilize multiple strategies to reduce risk.
I’m basing my current growth strategy on several
important facts about today’s market conditions. First, the Bull market
is entering its third or fourth year. That is longer then the historical
norm. Second, that Bull market was fueled mainly by low interest rates.
But short-term rates have risen from a low of 1% to the current 4.5%,
and are expected to rise further. Third, rising energy prices have
crimped consumer spending, as well as spurring price increases across
the board.
All these taken together means that, although the
underlying economy is very strong, it will be facing some stiff
headwinds the next year or two. Most analysts expect only single digit
returns from the indexes.
In markets where the indexes only produce
single-digit returns, you don’t want to rely on index-oriented
strategies. In those markets, individual stock picking and dividends
take on much greater importance.
As a result, I’m relying more on individual stocks
or selected closed-end funds, especially ones that pay the investor
first through healthy dividends. In fact, my growth-oriented portfolio
of stocks produces an income stream of 5-6% a year just from dividends!
Just as an experienced sailor has to adjust the
sails to deal with changing winds, investors need to modify their
strategies to take advantage of changing markets. Don’t choose a skipper
that sticks to only one strategy. Have an advisor that seeks to maximize
your return, no matter what the market conditions. Doing so should
provide growth while limiting your risk of loss.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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