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 restaurant sector is a fiercely competitive battleground for operators, especially at times when the consumers are careful about their spending habits, as my stock analysis suggests. One of the top performers in the quick service market, based on my stock analysis, is Chipotle Mexican Grill, Inc. (NYSE/CMG)—the operator of the hugely popular Mexican burritos and tacos fast food restaurant chain. The food is good and has caught on with diners seeking a better and healthier alternative to the old-school fast food operators, such as McDonalds Corporation (NYSE/MCD). While Chipotle ... Read More
The stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst. What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling. Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again. The fact that the Dow Jones Industrial Average and S&P 500 recovered their ... Read More
The chase for high-beta stocks appears to be fading at this juncture, as we are seeing a shift in the risk profile to lower-beta and more conservative large-cap stocks in the stock market. After the staggering gains made by technology and small-cap stocks in 2013, it’s time to take a prudent approach to the stock market and refrain from chasing risk at this time. We are seeing a move to consumer staples stocks that tend to fare reasonably well in both up and down stock markets. While I favor small-cap stocks in an up stock market, the current tension in the stock market ... Read More
The tension in the stock market is clearly evident, especially with the NASDAQ and Russell 2000 breaching their respective 50-day moving average (MA). What we have seen in the stock market is a shift away from higher-beta growth and small-cap stocks to the perceived safety of blue chips and large-cap stocks, which I recently wrote about. Driving much of the current malaise in the stock market has been the selling in the technology groups, specifically the high-momentum stocks that attracted major buying euphoria in 2013, in spite of what were high valuations and overdone optimism. While I continue to like technology for growth inve ... Read More
I’m starting to receive more questions regarding the state of the stock market and whether it’s simply a bout of profit-taking or the set-up of a deeper stock market correction. First of all, panicking is not what you want to do. Yes, we are seeing some selling surfacing, but that doesn’t necessarily mean you should go and dump stocks. After the year we had in 2013 and the fact that the bull stock market is in its fifth year and devoid of a major question despite the advance, it would not be a surprise to see some selling. Also, with bond yields beginning to rise, we will see a reduction in the assumed risk and will likely se ... Read More
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified. For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead. Let me explain… Between March of 2009—when the bull market run started—until February ... Read More
The S&P 500 recently traded at a record-high, just before tensions in the Ukraine erupted and the global stock market declined as fear of an escalation and war intensified. While the charts continue to show the stock market wanting to move higher after excellent gains in February, I still sense the upside moves will be more difficult to come by compared to what we saw in 2013. Even at this point, the Dow Jones Industrial Average and the S&P 500 are still negative this year. If the stand-off between the Ukraine and Russia doesn’t escalate, I would expect the ... Read More
When you are looking at your portfolio and considering making adjustments, it’s important to take into account not only the current environment, but what potential changes could occur in the future that can alter your investment strategy. Here’s a perfect example of what I’m talking about: We all know that Japan has been trying to lower its currency in an attempt to stimulate its economy. What’s a side effect of a weaker economy? Higher import prices, and since Japan relies almost entirely on imported energy, costs are rising significantly, which is hurting the average Japanese citizen since wages are not increasing. Just recently, Japan announced that it is now dr ... Read More
What year is this—1999? Some of you might have been active investors in the bull market during the late 90s, as I was, witnessing the S&P 500 soar during that decade. In fact, the bull market was so strong back then that it created a false sense of confidence, as many people quit their regular jobs to become traders. As we all know, this didn’t last forever and the S&P 500 bull market popped and sold off sharply. Just a couple of days ago, I read an interesting article about how small investors are back, seduced by the bull market, which has resulted in a very strong perfo ... Read More
For an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been. In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2 ... 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
Though making money is important, that’s not the be-all and end-all behind smart investment strategies. Just think about the common phrase “a dollar saved is a dollar earned.” Success in trading and investing means you need to be aware of both the upside and downside risks, such as we are seeing now as the stock market moves lower. In general, investors should hold off on buying for now until we see some solid opportunities. Trading volume is rising on the down days, which confirms the selling pressure. As well, the Dow Jones Industrial Average has declined for five straight sessions, losing nearly four percent in that time. A look at the chart of the Read More
There’s always something investors are worried about. Recently, we heard about the U.S. government reaching the debt limit, shutting down, and inching close to defaulting on its debt. Investors reacted, and the key stock indices started to slide lower due to concern over what could happen. Now, with a deal being struck to extend the debt ceiling and budget deadlines, those worries are over, meaning U.S. creditors will get their interest payments and the government will go on operating as usual. Thi ... Read More
Over the Labor Day weekend, I met up with my old friend, Mr. Speculator. As always, we had a debate about portfolio management. We had a long conversation about what really is the right way to manage your investments—and, for that matter, if there is any. Should investors invest 40% of their portfolio in bonds and 60% in stocks? Should it be the opposite? Or is there another possible combination? He said, “Moe, I am a firm believer in going for the fences every time for now, but do you really think I will continue to have the same approach in the long run?” (Turns out, there’s actually a ratio ... Read More
Not too long ago, the per-barrel price of oil was hovering close to $85.00. Now, a few months later, it trades above $107.00; this is an increase of roughly 25% in a fairly short period of time. One may ask why this matters, and what it means for the overall U.S. economy. At the most basic level, the price of oil has a very deep impact on consumer spending, which makes up 70% of the gross domestic product (GDP) of the U.S. economy. It impacts consumers in ... Read More