By Dr. Eva Mor – Author of “Making the Golden Years Golden”
One of the biggest worries that one over the age of 50 has is what to do with his money, where to invest. Very few of us have the luxury of retiring without any worries.
There are thousands of stocks and dozens of ways to invest. We all want our money to last forever, or at least as long as we need it. We want our money to grow every year, and make a decent percentage yield. And of course, we want steady income.
Now that we know what we want, it is very important to know what we do not want. It is desirable that we do all that is possible in to shy away from losses and trouble.
1) We do not want to invest in a single stock that fluctuates sharply up or down every day. The potential of loss is high and it is not in our favor.
2) We want to stay away from high fees and high commissions; 2 percent or higher are too much.
3) If a broker or financial advisor promises 20 percent or more profit on an annual basis, please show him the door.
4) We do not want to time the market. Investments in the market should be for at least five consecutive years.
5) Do not put everything in one basket. Investments should be diversified in a few options.
6) Private company bonds offer high yields, but they can be too risky.
The key to receive interest/income every single year is based on diversification. It is a good idea for one to invest 40-50 percent of their portfolio in fixed income and the rest in equities.
On the fixed income portion, one should have a mix that includes banks CDs, bonds, annuities (proceed with caution, ask all the questions), Zero coupons bonds, or other investments. The fixed income segment will increase in value about 3-5 percent a year guaranteed.
On the equities portion one should invest in the broad market ETFs index funds. (Exchange Traded-Funds, with very low commissions or expense) Buy a few of the ETFs to cover most of the market.
Here are a few sample ETFs that cover broad segments of the market:
iShares: Spider S&P 500 (Amex SPY). Dow Diamonds ETF (Amex: DIA)
iShares: RUSSELL 2000 Idx (NYSE ARCA:IWM. Midcap SPDR trust; 1 (Amex MDY)
iShares: S&P SC 600 Idx. Powershares: QQQ Trust (NASDAQ GM:QQQ).
The equities above will generate between 5 and15 percent a year on average during the course of five to 10 years. The combination between the fixed income (3-5 percent) and the equities (5 to 15 percent) will generate about 7 percent every year.
It is recommended at the age of 60 to reduce equity holdings by 10 percent every five years and shift it to the fix income portion of your investment.
Warning: Please do not check the market every day. It is in constant flux, and sometimes drops considerable for a short period of time. You will be discouraged and upset if you take a daily approach.
We recommend checking the results by quarters, not daily or a monthly. You are in it for the long haul. The method represented will give you peace of mind; after the first purchases, sit and relax; your next move will be months from now. Let the money work for you. With some patience, you’ll see great results.
To maximize profits one should evaluate the equity portion of the portfolio once a year. Consult with a broker and/or financial advisor to check if there is a need to shift money from one ETF to another.
There are certain years that the large caps (blue chips) such as S&P 500 do better and some years the small ETFs perform better.
When investing for your retirement while you are still working, you can be a little bolder. But when investing after you actually retire, it is wise to be more conservative.
I think it will be wise to repeat that you should be careful. The baby boomers and their parents make a good target for all kinds of schemes, such as annuities that are unsuitable for the seniors, as well as ones with over-hyped investment returns. Be careful and suspicious of any sales pitch that promises unrealistic returns, such as 12 percent or higher.
Before signing up with a broker, check their background, for which you can use the Finra’s Broker Check tool (www.finra.org) . If there any disciplinary actions taken against the broker or if she or he has been moving from one financial institution to another frequently, it should raise a red flag.
Open an account with a reputable and independent financial institution, and never write your investment check to an individual – always write it to the financial institution.
All investment decisions should be made without pressure. When I meet a broker for investment, I never have my checks with me. I go home, think it over, and talk it over with my kids, my husband and my financial adviser. If the broker pressures me to make the decision right there, because the deal will not be there the next day, I walk away from the “deal” as well as the broker.
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