Tag Archives: investment advice

3 Secrets to a Comfortable Retirement

My Comments: These lists are usually somewhat pathetic. Why just 3 secrets; why not 5? And these are not really secrets. But I needed something to try and catch your attention today so here are 3 Secrets!

I think it’s very possible that the next 30 years are going to be far less ‘profitable’ than were the last 30 years. So if you are in your 40’s and have enough presence of mind to know that there’s a high chance you’ll live into your 90’s, what follows makes a lot of sense. But I can tell you that when I was in my 40’s, having enough money to enjoy retirement never crossed my mind.

Walter Updegrave  |  January 17, 2017

The main goal of retirement planning is to be able to maintain roughly the same standard of living after your career as during it. But achieving that goal can a challenge. For example, the latest Transamerica Retirement Survey of Workers found that 40% of baby boomers expect their standard of living to fall during retirement, 83% of Generation Xers believe they’ll have a harder time achieving financial security than their parents, and only 18% of millennials say they’re very confident about their retirement prospects.
So how can you avoid having to ratchet down your lifestyle after calling it a career? Here are three ways:

1. Live below your means during your working years. This simple concept is something that many people have difficulty pulling off. Indeed, a 2016 Guardian Life survey on financial confidence found that nearly two-thirds of Americans say they’re not good at living within their means, let alone below them. But this is critical for two reasons: By saving consistently, a portion of your earnings today will be available for future spending when the paychecks stop. And the lifestyle you will be trying to continue in retirement won’t be as costly as what it might have been without the saving.

Granted, some people face such difficult financial circumstances that they have little choice but to spend all they earn. The issue for most of us, however, is finding a way to turn the resolve to save into actual dollars in a retirement account. The best way to tilt the odds in your favor is to make saving automatic, such as by enrolling in a 401(k) or other workplace retirement plan that moves money from your paycheck before you can even get your hands on it.

Generally, you want to set aside 15% or so of pay each year (including any money your employer kicks in), although you may need to step it up a bit if you’re getting a late start. If you can’t hit your target right away, you can work up to it gradually by boosting your savings rate a percentage point or so each year you receive a raise. If a 401(k) or similar plan isn’t an option where you work, you can sign up for an automatic investing plan and have money transferred each month from your checking account into an IRA at a mutual fund company.

Putting your savings regimen on autopilot allows you to bypass the chief obstacle to saving—you, or more accurately, your natural impulse to spend. It makes it more likely that the money you intend to save actually ends up getting saved. Further, if, say, 10% to 15% of your paycheck is going into your 401(k), then you pretty much have to arrange your life so that you’re able to live on the remaining 85% to 90%. In other words, you’re effectively forced to live below your means.

This approach isn’t foolproof. You can always sabotage yourself by running up lots of credit-card or other debt in order to overspend. But if you avoid piling on debt, save consistently and track your progress periodically—which you can do with a good retirement calculator like this free version from T. Rowe Price—you’ll reduce the chance that you’ll have to live a more meager lifestyle than you’d envisioned in retirement.

2. Learn to take pleasure in small things. Preparing for a secure and comfortable retirement is certainly important, but you don’t want to focus on saving and controlling spending so much that you don’t enjoy life. Fortunately, you don’t have to live large to be happy. On the contrary. Research shows that the pleasure you receive from spending even on major expenditures and big luxuries quickly fades. So indulging in more small, less-expensive purchases may actually lead to greater happiness than splurging on high-price items.

For example, in a paper titled “If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right,” researchers exploring the relationship between spending and happiness note that “if we inevitably adapt to the greatest delights that money can buy, then it may be better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high-thread-count socks—rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets.”

Clearly, you’re not going to eliminate all big-ticket expenditures during your life. But to the extent that you can find less costly yet still effective ways to treat yourself, you’ll free up more money to save for retirement and be better able to manage your spending after you retire without forcing yourself to live like an ascetic.

3. Get a bigger investment bang for your savings buck. Saving regularly by living below your means is the surest way to avoid seeing your standard of living fall in retirement. But another form of saving—reducing the amount you shell out in investment costs and fees—can also help. How? Simple. Morningstar research shows that lower costs tend to boost returns, which allows you to build a larger nest egg during your career and can lower your risk of depleting your savings prematurely after you retire.

The easiest way to reap the benefits of lower investing costs is to invest your savings as much as possible in a broadly diversified portfolio of index funds or ETFs, many of which you can find with annual expenses of 0.20% or less, vs. 1% to 1.5% for many actively managed funds. Low-cost index funds and ETFs can also bestow an advantage beyond their cost savings—namely, the more you stick to a straightforward mix of stock and bond index funds, the less likely you are to fall for gimmicky or exotic investments that can make it more difficult to manage your retirement portfolio and possibly drag down long-term returns.

I can’t guarantee, of course, that following these three guidelines will allow you to maintain your pre-retirement standard of living throughout your post-career life. But I can say that doing so should definitely tilt the odds in your favor.

Walter Updegrave is the editor of RealDealRetirement.com.

Investment Test

moneyMy Comments: I have no idea where the following came from. I found them in my archives and decided the respective statements and explanation are still very relevant. And besides, today is Monday and that’s when I post stuff about investing money. My apologies for not being able to correctly attribute this post.

Which investment has the highest average annual returns, historically?

Since 1978, according to Morningstar, stocks have returned an average annual 11.6%, compared with 11.1% for real estate, 8.9% for bonds and just 5.2% for the shiny yellow metal.

When yields go down, bond prices go up.

If market interest rates fall, which means new bonds will be issued with lower yields, the prices of outstanding bonds will rise. It’s simple supply and demand. Say you purchase a $10,000, 10-year bond with a 2% yield. That gives you $200 a year in interest. Now imagine that rates fall and new 10-years are issued at 1%. A buyer can choose between your bond, yielding 2% and paying $200 annually, or a new bond paying just $100 a year. Naturally, your bond will command a premium price in the secondary market. Similarly, if new bonds are yielding 3%, your 2% bond will become less attractive and will have to sell at a discount to attract any interest. So while the yield of your bond remains fixed for the life of the security, the market will adjust the price you can get for it to reflect current market rates.

The higher the yield on a dividend-paying stock, the safer the investment.

In fact, the opposite might be the case. Find the yield by dividing the stock’s dividend per share by the share price. If the high yield reflects an overly generous dividend, you have to ask yourself whether the company has the cash to sustain it. Look for a positive free cash flow, which means a company has invested what it needs to maintain its business and has money left over to spend on dividends. Another measure is the stock’s payout ratio—the percentage of earnings paid out in dividends. The average payout ratio for the S&P 500 has been around 40% recently. A spiking yield likely indicates a sinking stock price. That’s a red flag that demands further investigation.

A company’s market capitalization is calculated by multiplying the stock price by the number of shares outstanding.

Although definitions vary, so-called large-capitalization stocks are generally considered to be those with a market value of $5 billion or more; mid-cap stocks fall within the $2 billion to $5 billion range; and small-cap stocks are classified as those with a market value of less than $2 billion. Slicing and dicing a little further gets you mega-caps, at $100 billion or more, and micro-caps, at $50 million to $300 million.

Stocks aren’t in a bear market until they lose 20% of their value.

The classic definition of a bear market is a 20% decline from the previous peak, although the average loss suffered in 13 bear markets since 1929 is nearly 40%, measured by losses in Standard & Poor’s 500-stock index (not including dividends). A stock market “correction” is generally considered to be a pullback of at least 10%. Since World War II, there have been 11 bear markets and 21 corrections.

The best time to buy stocks is at the start of an economic expansion. The best time to sell is when there’s a recession.

The stock market anticipates the economy, not the other way around, typically by six to nine months. By the time you know there’s a recession, your portfolio has most likely already taken a big hit, and by the time a recession is pronounced over, stocks have usually been off to the races for a while. The Great Recession began in December 2007, according to the National Bureau of Economic Research, the official arbiter of recessions and expansions. But stocks had already peaked in October. And if you missed the start of the bull market on March 9, 2009, because you were waiting for the recession’s end, which came in June of that year, you’d have missed a 64% rally.

A stock with a low price-earnings ratio is always a better bargain than a stock with a high P/E.

Context matters with P/Es, which are calculated by dividing a company’s stock price by its earnings per share, often estimated for the coming 12 months. What’s high for a mature utility company could be low for a fast-growing tech stock, for example. Stocks in the utilities and tech sectors recently sported average P/Es of 18 and 17, respectively. Based on historical norms, that implied that utilities were overvalued by 19%, while tech stocks were 17% undervalued. In the same way, analysts at S&P Global recently considered biotech drugmaker Regeneron Pharmaceuticals, with a P/E approaching 25, to be a better buy than blue-chip pharmaceutical firm Pfizer, with a P/E of 12. P/Es are most useful when comparing a company with its peer group, or comparing an industry with its long-term average.

A strategy that calls for investing a fixed amount at regular intervals is known as:

Dollar-cost averaging can lower the average cost of shares because you are spreading out your purchases, hopefully buying more when prices are lower and fewer when prices are high. If you invest all of your money at once, rather than at regular intervals, you might get unlucky and buy the stock at or near its peak price.

The strategy also helps curb harmful behavioral inclinations. If you’re apprehensive about investing, dollar-cost averaging makes it easier to take the plunge by spreading your risk over an extended period. Once you’re in the market, the strategy can help you stick to your plan. Putting everything into the market at once guarantees that you’ll know all too well how much you’ve lost if you happen to invest at the wrong time. Investing at intervals erases that fixed reference point, making it easier to keep your cool.

How many companies in Standard & Poor’s 500-stock index have a triple-A credit rating?

Microsoft and Johnson & Johnson are the only companies to sport Standard & Poor’s highest rating, after ExxonMobil lost its AAA rating in April 2016. In 1980, 32 S&P 500 companies carried the coveted triple-A rating. Apple, which has the largest weight in the S&P index, has an AA+ rating.

In investing, the pleasure of making money trumps the pain of losing.

Investors feel the pain of a loss about twice as much as they feel the pleasure of the same-size gain, say market behavior psychologists. This loss aversion can contribute to a number of investing mistakes. Investors who fear a loss, and especially those who have recently suffered one, can be reluctant to take risks that are entirely appropriate. For example, many investors shunned the stock market after the 2007-09 financial crisis, missing out on significant gains. Loss aversion can also cause an investor to sell what should be a long-term holding too soon, after a short-term hiccup. Conversely, an investor might hold on to a losing investment too long, reluctant to lock in the loss.

5 Ways to Protect Your Money in Retirement

My Comments: OK, #5 may be a bit of a stretch for me. I’ve had a black thumb all my life; anything I plant dies immediately.

There are now millions of us in retirement, or what for some of us is semi-retirement. And whether you believe it or not, the rules underlying economics and finance have not suddenly become invalid.

No, the world is not about to end, though some would have you believe it might. But it will be different and there are always unintended consequences. The level of uncertainty right now is troubling to me, so these steps you might take are informative.

Martin A. Smith, CRPC®, AIFA®, RPS® February 27, 2017

Retirement is a celebrated event for obvious reasons. You have worked 30 to 40 years hopefully doing what you love and made a positive impact on society, within your church, and for the legacy and name of your family. Despite these noteworthy accomplishments, if you are not careful your “golden years” might not be quite as golden as you have hoped.

There’s almost nothing worse than finally arriving at your desired destination in life only to have the rug snatched from under you because of some mistakes that could have been avoided. That is what I am here to help you accomplish today…before you retire. Or, if you are already retired, then I urge you to consider the first of five ways retirees should protect their money during retirement. Truth is, you really do have a lot to lose, so let’s not risk it!

Here are five ways retirees should protect their money during retirement:

1. Invest in a Good Cybersecurity System

Cyber fraud is on the rise and retirees and the elderly are among the most vulnerable targets for cyber criminals. In many cases, being a victim of this type of crime can be avoided. Learn how to take measures to secure your personal data, such as sending secure emails with files that are encrypted when communicating with your financial advisor.

2. Understand What Your Retirement Money Is Invested in and Why

Financial literacy is a challenge for many. While many retirees are familiar with investment vehicles such as mutual funds, stocks and conceptually speaking, bonds, there are fewer who are able to explain how their portfolio is invested, what type of asset classes their portfolio is comprised of and how the economy will impact their portfolios.

In addition, I have found that a number of investors simply have the wrong notion in their minds about the pros and cons of investing in the stock market during a recession. Investment portfolios will fluctuate throughout the economic cycle (peak, recession, trough recovery expansion and peak).

3. Buy Long Term Care Insurance (LTC)

If you are like most people you expect to live a long time. Innovations in medical science and biotechnology mean that people are living longer. In fact, according to the National Institute on Aging’s “Global Health and Aging” report, “The dramatic increase in average life expectancy during the 20th century ranks as one of society’s greatest achievements. Although most babies born in 1900 did not live past age 50, life expectancy at birth now exceeds 83 years in Japan—the current leader—and is at least 81 years in several other countries.”

What does this mean for someone who is retired? While it is mostly good news, the bad news is that living longer comes with a price tag and an expensive one at that. That price tag is what we refer to as needing nursing care (i.e. long-term care), whether it’s in-home care or a nursing home facility.

The average daily cost of Long Term Care in most states exceeds $200 per day, in today’s dollars. Just image what the future inflation-adjusted cost will be. Long-term care is definitely a conversation that you want to have with your financial advisor.

Unless you have enough money saved to self-insure, a person who is retired can watch the value of their estate diminish considerably if they are uninsured and forced to spend their retirement savings to provide for their own nursing care needs, or the needs of an uninsured elderly parent.

4. Steer Clear Of Items That Depreciate

Many things will depreciate in value faster than you can say, “I love my retirement!”

I cannot say enough about “impulse buying,” especially for those who may suffer from an impulsive spending disorder. If you truly love your retirement, then don’t jeopardize your quality of life in retirement with wasteful spending. One example that comes to mind is casinos. According to http://www.casinowatch.org, there are 1,511 casinos in the United States that rake in $71.1 billion in annual revenues.

5. Plant a Vegetable Garden. Yes, I Am Serious!

You can’t enjoy your retirement fully if you are not in the best physical shape, right?

According to the Centers for Disease Control and Prevention (CDC), moderate-intensity level activity for 2.5 hours each week can reduce the risk for obesity, high blood pressure, type 2 diabetes, osteoporosis, heart disease, stroke, depression, colon cancer and premature death. The CDC considers gardening a moderate-intensity level activity, and can help you to achieve that 2.5 hour goal each week.

So, perhaps now would be a good time for you to engage in an activity that requires you to kneel, squat, use your arms, shoulders, back and leg muscles more vigorously.
Gardening is one of the best ways for retirees to gain exercise without having to spend money on a gym membership. In addition to the benefit of just being able to enjoy the outdoors and gain peace of mind as you feel the wind blowing, you can also save money by growing your own food.

Furthermore, how comfortable are you with the idea of pesticides, certain chemicals and “orgenetically engineered foods” that have been genetically engineered in some laboratory? I’ll pass! You should enjoy your retirement, therefore I hope you consider these suggestions.

Stock Manager of $37 Billion Doesn’t Believe the Earnings Hype

roller coaster2My Comments: Monday, post #2.

First, you don’t get to manage $37B unless you know what the hell you are doing.

Two, the higher we go, the harder will be the fall. Put a lot of your money in cash and keep it there until the dust settles.

by Jonas Cho Walsgard / February 19, 2017

Global stock investors may have their hopes set too high for 2017.

With rising stock prices, analysts may need to dial back their expectations with companies missing earnings growth estimates posing the biggest risk to equity markets, according to Robert Naess, who manages 35 billion euros ($37 billion) in stocks at Nordea Bank AB, Scandinavia’s largest bank.

“There’s too much optimism,” he said in an interview in Oslo on Wednesday. “It’s definitely too high. I’m pretty sure I’ll be right.”

Stocks have rallied amid signs of stabilization in China’s economy and bets that President Donald Trump will boost U.S. infrastructure spending, roll back regulations and cut taxes. The Standard and Poor’s 500 Index has risen 28 percent since hitting a low in February last year pushing up price to earnings to more than 21 times, the highest since 2009. Positive earnings per share growth is estimated at 15 percent for the S&P 500, according to data compiled by Bloomberg.

“This indicates that it’s a bit expensive,” the 52-year-old said.

Investors shouldn’t be fooled by top line sales growth as profitability is set to be squeezed by rising wages amid declining unemployment, the fund manager said. With margins already high, corporate earnings estimates will have to come down, he said.

Naess and his partner Claus Vorm quantitatively analyze thousands of companies to build a portfolio of about 100 “boring” stocks. They invest in companies with the most stable earnings and avoid expensive stocks, a strategy which delivered an 11 percent return for the Global Stable Equity Fund in 2016. It has returned 16 percent on average in the past five years, beating 96 percent of its peers.

The fund this year has boosted its stake in EBay Inc. while its biggest increases last year included Walgreens Boots Alliance Inc., Walt Disney Co., Verizon Communications Inc. and Apple Inc.

“It’s always better to have stable equities,” Naess said. “Long term you will get better returns. Good companies continue to be good. More cyclical companies have a tendency to stumble now and then.”

And while investors could be overestimating future company earnings, they may also be putting “too little weight” on potential risks from U.S. policy changes by President Donald Trump, such as potential trade conflicts, Naess said.

“There’s still risk with Trump even if the market receives it very positively,” he said. “There’s more risk now than before. The outcome range with Trump is wider.”

Trump is in the wrong place at the wrong time when it comes to the stock market

changeaheadroadsignMy Comments: It’s Monday, my day to talk about investments. Today, there will be two posts instead of one.

I think we’re in a bubble, and those don’t end well. From the tulip mania bubble several hundred years ago in Holland to the DotCom bubble in 1999-2000, a lot of people lost a lot of money.

If you aren’t already concerned about your exposure to the markets, you need to be. The downside threat far exceeds the upside potential.

Frank Chaparro / Feb 19, 2017

It looks like this bull market just won’t quit. Friday marked the 2,003 trading day since the stock market rally began back in 2009, making it even longer than the bull market that preceded the 1929 crash.

And since President Donald Trump’s surprise victory in November, stocks have been on a seemingly unstoppable upswing with the S&P 500 rallying nearly 10%.

The S&P 500, Dow Jones industrial average, and the Nasdaq all recently hit all-time highs at the same time for five straight days, making for the longest such streak in 25 years.

On top of that, stocks have not witnessed a 1% decrease since October 11. That is the longest streak since 2006.

As Trump noted in a tweet Thursday morning, consumer confidence has also improved. In January, consumer confidence soared to the highest level in over a decade.

And it’s not surprising that confidence is soaring when you consider the fact that a number of economic indicators are improving. The latest jobs report, for instance, exceeded forecasters expectations with 227,000 jobs added versus the predicted 180,000.

And that’s not all. Confidence also seems to have translated into higher retail sales. Retail sales picked up a 0.4% gain in January, which exceeded the 0.1% gain analysts expected.

But despite all of this data that suggests a strong and resolute economy and market, Michael Paulenoff, the president of Pattern Analytics, is still convinced a correction is on the horizon. He points to the current position of the Volatility Index and declining volumes as proof that our 415-weeklong rally is coming to an end.

“For decades volumes have preceded a rise in prices in the stock market. Likewise, declining volume leads to a decline in prices,” he said.

Paulenoff told Business Insider that the end of our current rally will put President Trump in the exact opposite situation as his predecessor.

President Obama presidency began a year after the stock market lost nearly 40% in the midst of the 2007-2008 financial crisis.

“When President Obama’s term as president started the markets were grossly undervalued,” he said.

“Obama just happened to be at the right place, right time — after a 50%-60% correction in the equity market amid historical fears about another depression,” Paulenoff added.

Trump, on the other hand, is not in the right place. “He is touting the upside in equity markets, for which he is not responsible,” Paulenoff said.”And it’s ironic because the coming correction is also not his fault, but people will likely attribute it to him.”

Opinion: This Market Bubble is About to Burst

bear-market-bearMy Comments: Yesterday, I decided it was time to think about moving my clients out of cash and back into the markets. At least with some of their money. Now, once again, I’m not so sure.

If you are retired, or about to be retired, and have the ability to control the investments made inside your retirement accounts, it’s a time to be very cautious. Missing a little upside to protect yourself against a serious downside is, I think, a smart move.

Published: Feb 8, 2017 | Mark D. Cook | Moneywatch

The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.

What do previous financial bubbles have in common with this one? There are many similarities, but one in particular is the real estate bubble of the mid-2000s that led to the 2008 global financial crisis. Then, extensive real estate buying overwhelmed supply. People were borrowing even more than 100% of the cost of the real estate, using creative means of financing never seen before in U. S. credit markets.

But debt is debt, which means it is a liability that someone is responsible to repay. That obligation was totally absent in the minds of borrowers and lenders alike — until demand dried up and reality hit.

How is this similar to the market now? The Federal Reserve has created an environment of low- to almost non-existent returns on bank saving accounts, and in the process it ruptured the savings mentality that had been a foundation of American society. People once could live within their means and make a habit of saving some of their income for retirement. They expected banks to pay a rate of interest to savers that was fair and consistent.

When this was no longer the case, people with savings chased returns in riskier areas including stocks, as well as not saving as much. Indeed, the saving generation has been forced into stocks, in which they do not have deep-seated faith. They will take the first opportunity to return to their savings ways again.

Three factors substantiate the view that this market is in a bubble. Each factor warns that stocks are in extremely overbought territory.

The first factor is the CCT indicator. This indicator is a proprietary internal measurement of the general volume of the New York Stock Exchange. The measurements take into account the institutional participation as a ratio of the overall volume. Also measured is the duration of heavy block buying in rallies.

The sum total of all the measurements now shows the lowest bullish energy ever — even lower than in 2008, just before the market crash.

The second factor is the sluggish VIX  (S&P Volatility Index) and the persistence of readings just above 10. These overbought readings indicate a pressure to return to higher levels, thus requiring downside volatility to neutralize the pressure. The longer this persists, the greater the downside pressure.

The third factor is a short-term daily indicator called the 1.5% one-day decline, which signals a pending environment change in chart patterns. The U.S. market has now gone three months without a 1.5% one-day decline. This is the longest period in the record-keeping history of this indicator — and a sign of imminent danger. Bubbles burst.

Investment Strategies for Your Retirement Accounts

InvestMy Comments: A phrase I’m known to use from time to time is that ‘life in this country is better with more money than it is with less money.” While this might seem too obvious for you, there are many people whose efforts to have more money have fallen flat. Here’s a few ideas that might help you.

Michelle Mabry, CFP®, AIF® January 26, 2017

With interest rates coming off a 36-year low and expected to rise, most investors expect to see bond prices fall and consequently deliver a negative return in what is considered a low-risk asset. We have seen a rebound in equities, and with the S&P 500 and Dow at all-time highs, some say the stock market is richly valued. As a retiree seeking income from your investments and looking to preserve your principal, where can you turn? What are ways retirees can invest for income and still minimize risk?

You have always heard you need a diversified portfolio and that has not changed, but what has changed is how you diversify it. Retirees need to determine the proper asset allocation of stocks, bonds, cash and alternatives based on income needs, time frame, and tolerance for risk.

How to Diversify Investments in Retirement

Let’s look at bonds first. If you invest in a traditional bond portfolio you are exposing yourself to interest-rate risk as rates rise and bond prices fall. You need to understand the average duration of the bond investments you hold. For example, a typical intermediate-term bond fund will have a duration of 5-10 years. If the average duration is eight years, then a 1% increase in rates will result in an 8% decrease in the net asset value (NAV). This would wipe out all the interest gains and then some. The shorter the duration, the less the potential loss.

So it is important to look for other assets that have low-risk characteristics or standard deviation similar to bonds but produce absolute returns, that is, a positive return regardless of which way rates are moving. Floating rate income, TIPs and some market neutral funds can be a good way to diversify your fixed-income portfolio. You may also want to look at structured notes as a way to produce yield and protect your downside.

Dividends as Equity

For the equity portion of your retirement portfolio, consider blue chip dividend-paying stocks or dividend growth strategies. Many large-cap funds pay dividends in excess of 2.5%, plus you have the upside appreciation potential over time to keep pace with inflation during your retirement years. Remember to keep focused on the longer term and not be too concerned with short-term volatility. Dividend-paying stocks have outperformed most other asset classes over time. Small-cap stocks have been one of the best-performing asset classes, so it would make sense to find dividend-paying small- and mid-cap equities as well.

When searching the universe of mutual funds and ETFs, there are not many of these, but a couple that have attracted our attention are WisdomTree Midcap Dividend Fund and WisdomTree Small Cap Dividend Fund with yields of 2.63% and 3.03% respectively as of December 30, 2016. Of close to 2,000 ETFs available in the U.S., a search revealed only four that are exclusively dividend-driven and which also hold just domestic small- or mid-cap stocks. Two of the portfolios feature issues that have exhibited dividend growth while the other two ETFs (the WisdomTree funds) include all dividend payers in their capitalization range.

Include Alternative Assets for Diversification

Also important in developing a portfolio for retirement is a focus on absolute return strategies, and many of these fall into the alternative asset class. Alternatives are anything that is not a stock, bond or cash. Alternatives have no correlation or negative correlation to other asset classes so they are great diversifiers. Our retired clients typically have one-third of their portfolio in alternatives. Examples include managed futures and long/short strategies as well as volatility strategies using options. An example is LJM Preservation and Growth which has shown a positive return every year since its inception 10 years ago with the exception of one year, 2013, when the stock market went straight up and there really was no volatility. The fund was up in 2008 when stocks and bonds were not, and therein lies the importance of a diversified portfolio to manage risk.

By rebalancing your investments quarterly or semi-annually back to the original investment allocations you can create the cash needed to sustain your monthly withdrawals in retirement until the next rebalance. We do not recommend a withdrawal rate in excess of 4% in light of current market and economic conditions.