A favorite Wall Street saying is, “The more risk you take, the greater the potential rewards.” John Waggoner, writing for USA Today, says this suffers from oversimplification. People forget that word “potential.” In fact, according to Waggoner, high-risk stocks often have big gains but can also hit bigger potholes. He cites Berkshire Focus, which scored a 98% gain just heading into 2000, but turned around and lost over 61% the following year. What would it have to do to just recover its losses? Try 160% to just get back even. With football season cranking up, your favorite team needs a good defense and this strategy works well for a stock portfolio, also. Bob Collie, research strategist for Russell’s Americas Institutional investment division, says “defensive stocks” fare better than ones deemed riskier. This would apply to the stock of companies that have a strong business model, featuring “low debt, stable earnings, and a good return on assets.” Examples cited include Google, McDonald’s, Disney and AT&T.
And the ultimate high-risk investment? What are those winning lottery numbers again?
“Risky Investments Give You High Risk, But Little Else” USA Today, 7/28/11
Once upon a time, the most pressing dilemma faced by a retiree was how to manage all that new-found freedom. If you’re one of the millions of Baby Boomers, however, time management may be the least of your retirement concerns. Today’s retiree faces tougher decisions than ever before. Here are a few things to consider when planning your retirement.
When to Retire –
You’re ready to retire when the combination of your expected Social Security benefits, pensions, and retirement income can provide adequate cash flow to meet your future needs. But despite meticulous calculations and thorough planning, there’s no way to know for sure what expensive surprises may await. For this reason, it may be wise to work an additional two or three years to bulk up your contributions to Social Security and retirement savings. Although you may chose to sign up for Social Security benefits at 62, you might want to delay it for a few years. The longer you wait to receive checks, the greater your future benefit will be.
Where to Retire? –
Once you are no longer bound to a job, you’re free to live anywhere. However, the downfall of the housing market has undoubtedly made an impact on your plans. Downsizing to a smaller, more affordable home may not be realistic in the current environment – especially if your home is mortgaged for more than it’s worth.
If possible, waiting a couple years to relocate may help you recover some of your home’s lost appreciation should the housing market improve. Eventually moving to a place with a lower cost of living may also help offset some of the lost value of your real estate investments.
Nothing is more upsetting than watching your hard-earned savings evaporate in a stock market slump when you’re on the threshold of retirement. If this has happened to you, then you’re probably feeling apprehensive about your options. You must tolerate some serious risk in your portfolio to earn decent returns, right? Not necessarily. There are new, innovative ways for you to have safety and opportunity on the same dollar, at the same time.
When times are tough, making decisions is tougher. Today’s retirees know this better than anyone. Fortunately, you don’t have to face these hard decisions alone.