Reason : Theres A Chance Youll Capitulate If Things Get Worse
The preceding two situations relate to risk capacity, where a too-aggressive portfolio might be at odds with someones spending horizon. In other words, their spending goal dates could force a liquidation at an inopportune time .
But even if an investor has an adequately long time horizon to hold stocks, theres another issue that can crop up with too-risky portfolios, and thats capitulation risk. Thats my own term, referring to the chance that the investor could become so nervous during periods of losses that he sells himself out of stocks, thereby turning paper losses into real ones.
For investors who have found themselves inordinately spooked by the recent market volatility, its wise to use it as a wake-up call to make some changes, even if their portfolios equity exposures seem right on paper. After all, recent market losses are minor relative to the depth and duration of some previous market downturns. The S& P 500 lost half of its value in the bear market that began in March 2000, for example, and that bear market was a grinding one, lasting 31 months. The bear market that ensued during the great financial crisis was quite a bit shorter, just 17 months, but the losses were an even sharper 56%. In other words, if the recent market volatility has you spooked, you aint seen nothing yet.
Retirement Stocks: Procter & Gamble
Household products is another sector for retirement stock opportunities. A defensive sector, names in this space will be more resilient if markets correct or crash in the coming years. Not only that, with high-margins, and large economic moats, you can be rest assured they can continue to pay their respective dividends.
In short, the perfect recipe for a successful retirement portfolio. With this in mind, PG stock is a name to keep in mind mainly due to its stability. This is obvious when considering its track record of dividend increases. As our own Louis Navellier wrote on Jan. 19, the company has increased its dividend 57 years in a row.
Dont expect to get rich off of this blue-chip stock. But, if you are looking for a stable name for the long haul, this is one of your best options. Its 2.4% dividend yield may not be the highest when it comes to dividend stocks. But, at a payout ratio of 56.5%, it may be much more sustainable than other dividend plays paying out 70% to 80% of their earnings.
Sure, low interest rates have pushed this stocks valuation to levels far above their historic forward P/E. Yet, while pricey, consider this a safe, stable retirement stock for your portfolio.
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More From Fa Playbook:
The right amount of cash depends on each retiree’s situation, said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, California.
“There’s not a silver bullet or a magic answer,” he said.
Advisors may suggest keeping three months to six months of living expenses in cash during a client’s working years.
However, the number may shift higher as they transition to retirement, said Marisa Bradbury, a CFP and wealth advisor at Sigma Investment Counselors in Lake Mary, Florida.
The worst thing you want to do is sell your wonderful investments while they are at bargain-basement prices.Brad Linebergerpresident of Seaside Wealth Management
Many advisors recommend retirees keep a larger cash buffer to cover an economic downturn. A retiree with too little cash may have to dip into their portfolio and sell assets to cover living expenses.
“The worst thing you want to do is sell your wonderful investments while they are at bargain-basement prices,” said Lineberger.
Bradbury suggests retirees keep 12 months to 24 months of living expenses in cash. However, the amount may depend on monthly costs and other sources of income.
For example, if their monthly expenses are $4,000, they receive $2,000 from a pension and $1,000 from Social Security, they may consider keeping $12,000 to $24,000 in cash.
Reason : You Have A Short
New investors have been flooding into the market during the pandemic, thanks to strong gains on stocks and other assets as well as the fact that many individuals have extra time and cash to invest. Research in 2021 from investment firm Charles Schwab found that these newbies have a median age of 35 and their incomes are about $20,000 less than investors who were in the market prepandemic. Half of the new investor group–what Schwab calls Generation I–are living paycheck to paycheck. A healthy share of the new investor group was expecting to hit big lifetime milestones within the next few years, such as buying a home or having a baby.
Those statistics suggest that some new market entrants are not laser-focused on amassing investments for their retirements in 30 or 40 years. Rather, they may need to tap their portfolios sometime soon to cover an emergency expense, tide them through job loss, or fund some shorter-term, nonretirement goal like a house down payment. If they need to get out of their stock investments at an inopportune time, they could lock in losses.
With U.S. stocks still up more than 10% over the past year, new investors who find themselves with too risky portfolios should feel absolutely no shame in liquidating some of their equity holdings in favor of a portfolio mix that adequately reflects their potential need for liquid assets within the next few years.
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If You Want A Million
When you’re saving for retirement, you want to make sure that you’re making the most of your investments, so when that day finally comes, you have the most money possible. The account you invest can have huge implications for how much money you’ll have when you retire and how you can best minimize your tax hit.
Below, three seasoned Motley Fool contributors review the best ways to invest for retirement in order to make the most of the money you contribute.
Retirement Stocks: Automatic Data Processing
After recovering from last Marchs coronavirus crash, ADP stock has slipped lower as of late. But, that doesnt mean this venerable payroll processor isnt a great long-term opportunity.
Sure, its 2.3% dividend isnt the highest yield you can find. But, Automatic Data Processing has a long history of dividend increases. In the past five years, its payout increased by an average of 12.9%. But, besides its history of dividend growth, theres another reason to consider this as a great retirement income play.
As a Motley Fool Commentator recently discussed, ADP may not have the strongest economic moat. Nor is it in a fast-growing industry. Yet, what it does offer is reliable dividends. With consistent, recurring revenue, you can be confident that this boring payroll processor will continue to generate the cash flow necessary to support its dividend.
One caveat, though, is valuation. At a forward price-to-earnings ratio of around 29x, valuation may be stretched here. That being said, consider this a stable retirement stock to buy, on its merits as a dividend aristocrat.
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Retirement Stocks To Buy: H& r Block
Admittedly one of the riskiest ideas for retirement stocks, Ive nevertheless plugged H& R Block whenever I felt it was appropriate to do so. Primarily, Ive been bullish on HRB because of the gig economy. According to data from Statista.com, analysts project that in 2023, the projected gross volume of the gig economy is expected to reach 455.2 billion U.S. dollars.
Now, its confession time: my pounding on the table for HRB stock has been inside an echo chamber. Still, the dynamics of the Covid-19 crisis embolden me once again. With so many corporate employees getting a taste of the gig life, many will want in. Arguably most companies wont allow telecommuting to go on indefinitely, which then supports H& R Blocks business.
How so? Independent contractors have more complex tax profiles than a W2 employee. And this segues into my second point: this complexity will only increase because of cryptocurrency holdings.
As CollegeFinance.com reported, over one in three college students and recent grads started investing in 2020, while 11% started this year. Interestingly, 62% of college students see their cryptocurrency investments as long-term holdings, while only 14% do so for quick profits.
You know whats more complicated than a gig workers taxes? Yup, cryptos. Its a longshot but HRB could be a surprisingly viable idea for retirement stocks.
These Stocks Have Been Big Winners In The Past And They Could Rise Even More Over The Next Decade
The stock market could help you retire as a millionaire if you pick the right companies and hold them in your portfolio for a long time, as doing so will help you gain from the power of compounding and evolving trends in various industries.
For instance, a $50,000 investment in Amazon a decade ago is worth about $500,000 now thanks to the stock’s nearly 900% gains over the past decade, and that’s after accounting for the steep drop in the e-commerce giant’s stock price in recent months. Amazon, however, is not the only company that has generated solid returns for investors over the past decade.
Nvidia, Microsoft, and Tesla have also generated massive returns in the past 10 years, and it won’t be surprising to see them maintain their trajectory in the coming decade. Let’s see why investors can put $50,000 in these companies and retire as millionaires after a decade.
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Take Your 401 With You
Most people will change jobs more than half-a-dozen times over the course of a lifetime. Some of them may cash out of their 401 plans every time they move, which can be a costly strategy. If you cash out every time, you will have nothing left when you need itespecially given that you’ll pay taxes on the funds, plus a 10% early withdrawal penalty if you’re under 59½. Even if your balance is too low to keep in the plan, you can roll that money over to an IRA and let it keep growing.
If you’re moving to a new job, you may also be able to roll over the money from your old 401 to your new employer’s plan if the company permits this. Whichever choice you make, be sure to make a direct transfer from your 401 to the IRA or to the new company’s 401 to avoid risking tax penalties.
Know Your Time Horizon
One way you can actually lower your risk is by committing to holding your investments longer. The longer holding period gives you more time to ride out the ups and downs of the market.
While the S& P 500 index has a great track record, those returns came over time, and over any short period, the index could be down substantially. So investors who put money into the market should be able to keep it there for at least three to five years, and the longer, the better. If you cant do that, short-term investments such as a high-yield savings account may be a better option.
So you can use time as a huge ally in your investing. Also valuable for those who commit to invest for the long term, you dont have to spend all your time watching your investments and fret about short-term moves. You can set up a long-term plan and then put it on autopilot.
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Benzingas Best Retirement Investment Brokers
The table below shows the best retirement investment brokers.
- Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
- Mobile app allows users to access stocks and trade in real-time while on the go
- Enforces Pattern Day Trading restrictions
- Mobile app could offer more features
Choose A Balanced Portfolio
Regardless of your stage in life, a balanced portfolio representing stocks with differing levels of risks is always the goal. If you think you have identified a stock that you believe will be the next Amazon or Apple, dont shift your entire portfolio to that single stock. Maybe invest a very small percentage into the stock and leave the rest spread out among healthcare, technology, industrial and other sectors. Spreading risk throughout your portfolio is how the pros manage risk.
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Mistake #: Borrowing From Your Qrp
Many QRPs allow you to borrow from your account. Unless you need the money for an emergency, try not to. Borrowing can be an expensive choice, in two ways:
- Smaller retirement savings: When you take out a loan you are losing the potential for investment growth and that could leave you with a smaller retirement savings. How much smaller? This depends on a number of factors, including the size of the loan, the repayment period, whether you continue contributions during this period, the earnings on your account, and the loan interest rate. Also, if you stop contributing while you are paying back your loan, you wont receive any employer matching contributions.
- Repayment requirements: If you lose your job or take another one, youll have to repay the money quickly, usually within 30 to 60 days. However, if not repaid, the outstanding loan balance is generally subject to income tax and possibly an IRS 10% additional tax for early or pre-59 1/2 distributions. The 2020 Coronavirus, Aid, Relief and Economic Security Act includes provisions providing greater repayment flexibility for certain individuals affected by the coronavirus pandemic. If these apply to you, you should still consider the potential effects of borrowing from your QRP on your ability to reach your retirement goals.
In addition, cashing out of your 401 when you move to a new employer might be costly as well. Know your distribution options when changing jobs.
Understanding Your Investment Account Options
Now that youve made the right choice in deciding to save for retirement, make sure you are investing that money wisely.
The lineup of retirement accounts is a giant bowl of alphabet soup: 401s, 403s, 457s, I.R.A.s, Roth I.R.A.s, Solo 401s and all the rest. They came into existence over the decades for specific reasons, designed to help people who couldnt get all the benefits of the other accounts. But the result is a system that leaves many confused.
The first thing you need to know is that your account options will depend in large part on where and how you work.
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Real Estate Investment Trusts
REITs are an asset that invests only in real estate operations, such as the purchase and management of residential and commercial real estate, hotels and warehouses. A REIT may also fund other real estate assets such as mortgages. REITs are legally required to pay out at least 90% of their taxable income to investors to avoid liability for U.S. income tax, though many aim for a full 100% payout.
REITs are a particularly attractive investment because they can pay out significant dividends. A number of mutual funds such as the Vanguard Real Estate Index Fund Investors Shares or the Charles Schwab US REIT ETF invest in a large number of REITs. Participating in one of these funds is equivalent to investing in the American real estate industry. REIT-focused mutual funds can be an excellent option for retirees because they are diverse and can offer good returns. Direct REIT stocks are not suggested for people planning to retire soon since they are slightly riskier than traditional REITs.
Reason : Youre Getting Close To Retirement And Need To De
Something has dawned on me as Ive interacted with older adults over my career : Even as our comfort level with risk-taking usually grows as we get our sea legs as investors, our plans ability to absorb risk usually diminishes. I think that explains why its so tough to get older investors to de-risk their portfolios in the years leading up to and in retirement. Theyve seen this movie. They know stocks usually recover, and their stocks have beaten everything else in their portfolios by a big margin. And stocks current run really dates back to early 2009 the big losses that stocks endured during the great financial crisis have been erased. Is it any wonder that so many older investors are standing pat with equity-heavy portfolios?
Yet even as risk tolerance grows with experience, risk capacity–the ability to absorb big losses in our equity portfolios–declines as we get close to drawing from our portfolios. At that life stage, its wise to begin building out positions in cash and bonds as a bulwark. If a lousy market materializes early in retirement, the investor can spend through the safe stuff versus tapping depreciating equity assets. Heading off sequence-of-return risk helps explain why my bucket portfolios generally hold 10 years worth of spending in cash and bonds. Its also why, in our recent research on in-retirement withdrawal rates, we found that balanced portfolios generally supported higher withdrawal rates than more equity-heavy ones.
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