Retirement planning is about understanding your retirement goals and the retirement strategies needed to get you there. Conventional retirement wisdom suggests that individuals should hold a well-diversified portfolio of stocks, bonds, and cash that grows proportionally as one ages.
The old adage for allocating funds between stocks and bonds holds that you should keep a percentage of stocks equal to 100 minus your age. If you are 35, a conventional financial planner would tell you to put 65% in stocks and 35% in bonds. If you are 60, they would tell you to put 40% in stocks and 60% in bonds. Or looked at another way, the allocated bond percentage is equal to your age…the remainder is in stocks.
Younger investors have the luxury of time on their side and can afford to have a larger percentage of their investments in high-risk/high-yield equities. The older you get, the better it is to have an increasingly large percentage of your retirement income in low-risk/low-yield investments.
That said, high-yield investments are not for everyone. Keep in mind, when you are looking for high-yield investments, such as penny stocks, your risk will be much more significant than with conservative investments, such as government bonds. But then again, a basic rule of investing is that high risk translates into high reward.
Where can investors looking to build their retirement nest egg turn to increase their income and decrease risk?
Whether you’re high risk or risk-averse, one of the most common investment strategies is to focus on income-generating investments. This is easy to manage, as investors spend only the income (dividend yields, interest) that a portfolio generates.
If you want to generate additional income from your investment strategies, you may want to streamline your portfolio and increase the bond allocation to higher yield bonds, or change your stocks to higher-dividend equities.
Regardless of age and where you’re at with your retirement savings, there are investment strategies to suite your risk level and long-term needs. Some investors prefer to maximize expected returns by investing in risky assets, others prefer to minimize risk, but most look for a strategy somewhere in between.
That’s why it’s important to look for investment strategies that allow you to take advantage of long-term growth on the stock market; while hedging against downturns with high-yield bonds and equity funds.
The stock market is showing that it will not be easy to move to new record-highs given the overhanging uncertainties around the world, stretching from our backyard over to the Middle East and on to China. The current market risk is high, but as I mentioned briefly in my previous commentary (see “How to Limit Risk and Profit from Momentum Stocks Like Netflix”), you can play the upside via a leveraged risk management strategy: call options.
Use of Call Options on the Rise—And for Good ReasonWhile the majority of professional and retail portfolios are composed of stock positio ... Read More
In the past, I have often talked about the quick money that can be generated trading big-volume momentum stocks in the Internet and social media spaces. Take a look at the biggest companies by market-cap on the NASDAQ and S&P 500, and you'll find numerous highflying, valuation-defying stock market trades. Of course, I'm talking about the likes of Facebook, Inc. (NASDAQ/FB), The Priceline Group Inc. (NASDAQ/PCLN), Twitter, Inc. (NYSE/TWTR), LinkedIn Corporation (NYSE/LNKD), Tesla Motors, Inc. (NASDAQ/TSLA), and Netflix, Inc. (NASDAQ/NFLX). Apple Inc. (NASDAQ/AAPL) is not in this group because the stock’s gains tend to be steadier, rather tha ... Read More
In the first quarter, we witnessed a market shift back to higher-beta technology, growth, and small-cap stocks as investors searched for higher potential profits. Yet while this investment strategy makes sense, you also need to make sure your portfolio is diversified across numerous sectors and stocks with varying market caps, including dividend-paying stocks. Dividend stocks may not have the upward explosiveness of smaller technology stocks or the large-cap momentum stocks like FaceBook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), and Netflix, Inc. (NASDAQ/NFLX); but you know the large-cap blue-chip dividend stocks found on the Dow Jones Industrial Average and S&P 500 offer ... Read More
Success in the stock market is all about balancing risk and reward. Too much risk and you leave yourself vulnerable to added downside when the stock market turns, as may be the case at this time. However, too little risk and you don't fully partake in the upside moves of the stock market, though your downside risk is lessened. The key is to understand the stock market we are in and alter your investment strategy accordingly. Prior to the flush in the stock market on Wednesday, technology growth and small-cap stocks were leading the broader market higher this year. Yet as we also witnessed, the higher-beta stocks were also vulnerable to added selling on Wednesday. What happened on Wednesday (and what hap ... Read More
Oil prices are on the downside, and we could see West Texas Intermediate (WTI) oil decline to the $40.00 level and below. A few years ago, the mere mention of oil in the $30.00 level would have been viewed as silly, as many believed $100.00-a-barrel oil prices would be the norm. But here's the problem: the advanced fracking technique to squeeze out oil from the cracks in the rock led to a revolution in oil production, which inevitably is hurting oil prices. The good news: it’s creating an investment opportunity for aggressive investors.
Pressures Pushing Oil Prices DownwardNow, we have massive domestic oil production from the shale oil in Montana and North Dakota that has helped to produce a flood of oil i ... Read More
The stock market continues to want to edge higher, but beware. I still sense there will be more downside moves that will provide a trading opportunity. At this juncture, I would be looking for sell-offs in the stock market and chaos. Just like what we saw in 2008 when the stock market and big banks crashed, when a stock market correction comes, there will be aggressive trading opportunities for more active traders.
Stock Markets Down, but Bigger Adjustments AheadThe strengthening dollar will make American goods and services more expensive for exports, which will likely result in a squeeze on the profit margins of multinational companies that do much of their bus ... Read More
If you haven’t already done so, you should start to take a closer look at small-cap stocks.
Small-Cap Stocks Outperforming in 2015While small companies underperformed in 2014 with the Russell 2000 gaining a mere 3.53%, compared to the 13.40% and 11.41% advances by the NASDAQ and S&P 500, respectively, I believe that as the long as the economic renewal holds, small-cap stocks could turn things around this year. So far in 2015, small-cap stocks are second only to the technology sector. The Russell 2000 is up 2.10% as of Thursday, versus a 4.88% move by the NASDAQ. At this time, small-cap stocks are beating the S&P 500 and DOW; it’s still early on, but it’s looking good coming off of a soft ye ... Read More
The third season of House of Cards will likely once again see a massive influx of new subscribers flow to Netflix, Inc. (NASDAQ/NFLX). The company is sizzling on the chart and is the “Best of Breed” in the video streaming market at this time. Netflix currently has about 57 million subscribers. Having said that, my stock analysis shows that the top-heavy valuation will need to be fuelled by better top-line growth, especially from the international markets where Netflix is dominant. The company already offers its streaming service in about 50 countries, but it is aggressively aiming to expand into h ... Read More
What does it take to develop a successful, long-term investment strategy? This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters. Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations. One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company. A great example is the automoti ... Read More
Well, that didn’t take long! Just a few weeks ago, I wrote an article stating that investors should begin to worry about the lofty level of the stock market. Since that time, the S&P 500 has dropped by more than five percent in less than two weeks. This market correction won’t be a surprise to my readers, as I have been suggesting investment strategies that can help prepare your portfolio for a large downswing in the market for some time now. When I wrote the article in late January, the S&P 500 was surging, even though the preliminary Thomson Reuters/University of Michigan index of consumer sentiment dropped month-over-mo ... Read More
The last time I saw 5,000 on the NASDAQ was way back in early 2000, prior to the collapse of the technology sector and all of the froth and euphoria on Wall Street. If you were trading back then, you would have recalled the staggering froth and frenzy that drove the technology sector to heights that were simply not sustainable and excessive. Well, it took more than a decade, but it looks like the technology sector is on a roll again. I have been bullish on technology stocks as the top growth area in my outlook for this year and so far, this is panning out.