With the years of retirement increasing, you need more than income-based assets in your portfolio. To offset inflation’s toll, most investors need equities for growth. For a better chance of investment success, be sure you adhere to these key investment principles (note that no investment system or methodology will insure profits).1. Invest in undervalued securitiesThis principle requires you to do your homework finding stocks that are worth more than their market price reflects. If you were purchasing real estate for profit you would look for houses that you can buy–for whatever reason (death, divorce, ignorance, foreclosure)–for less than what the market will pay. But this requires that you know what price houses will bring, and then find those available for less than market price. That way you build in your profit when you buy. If you simply buy any stock with the hope that the market will rise taking almost all stocks–including yours–with it (like boats rising to a high tide) you risk that the market will falter, or that your stock was overvalued in the first place.Invest only in those stocks that the market has undervalued. Look for underlying businesses that show more value present than reflected in their current stock prices. This gives a margin of safety to your investment, so contends Warren Buffet. The market will eventually recognize the stock’s actual value; then you can take your profit. But this approach requires that you be an active investor working hard to find those stocks. The effort you make potentially minimizes your investment risk, while potentially maximizing its return.2. Use market volatility to tweak your profitsMarket volatility reflects the overall emotion of investors, which continually changes under a myriad of circumstances and events. Do not let the volatility run you ragged; use it only to enhance your buying and selling times for the stocks you have investigated. If you have done your homework and know which stocks are undervalued, you can use a downward swing of the market to buy and build more profit in to your investment. Likewise, if you have a stock that has risen to its fair market value, you can use an upswing that overvalues it to sell for more profit.Determine what type of investor you areIf you are willing to commit the time and energy to do the kind of research required for applying these two key principles, then more power to you. You may have a chance to beat the market averages. But, if you are not, then you may be happier investing in one of the stock market indexes to get its average return. Give us a call or fill out the reply coupon so we can help you find a way suitable to you for investing in equities identified as undervalued.
Allocate Your Investments to Achieve Your Retirement Goals
Your retirement concerns may include income to live on, travel, gifting, and making bequests to heirs and charity. What can you achieve among these? The value of your investments and their allocation among various investment categories suggest statistically what is realistic for you to achieve–but not what you will achieve. Entering retirement is a good time to strategize on how to best allocate your resources to achieve what you can. Maintaining your strategy will keep you on track. Let’s review the basics.Entering retirement at 55 to 65 years old gives statistically 20 or 30 years to live at least. That is a long timeframe for saving. But if you will need to live on part or all of your investments, then you better maintain them so they can provide you with income for the duration. If you have plenty of income from pensions and investments to live on, then any excess investments can be invested for long-term performance. Deciding your situation on income and excess investment determines your allocation strategy. The three fundamental investment categories are stocks, bonds, and cash. They have their many renditions as mutual funds, ETFs, money markets, unit trusts, certificates of deposits, etc. that produce stock-like, bond-like, or cash-like performance. These three historically suggest three fundamentally different statistical return and risk categories to choose from. Their historical performances determine what is realistic to expect for investment growth and at what risk. Stocks have historically had the highest returns over time, but the greatest risk. To gain these higher returns, investors need both the time and a willingness to ride out market downturns. This requires a long-term strategy (at minimum five years and higher).Bonds are generally less volatile than stocks but offer more modest returns. Investors approaching a near term (six months to five years) need for income might increase their bond-type holding because of their reduced risk of loss. Do not include high-yield or junk bonds here. Cash and cash equivalents–such as savings deposits, certificates of deposit, treasure bills, money market deposit accounts, and money market funds–have almost no risk. But they are most vulnerable to inflation. Store only assets in this category for immediate (within six months) use.Retirees generally lean toward a lesser risk portfolio of investments because of their nearer term need for income. Typical percent allocation of a portfolio among stocks–bonds–cash category types is 40 – 40 - 20 or 20 – 60 - 20. Lastly, you do not want to depend on one stock or one bond in each category. Companies can default or go under. Be sure to diversify your investments within each category. That is where all the various funds and other investment vehicles come into play.
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