Do you wish you had more money these days? You aren’t alone. Your retirement income streams may seem insufficient.
Interest rates are at rock bottom - and it appears they will stay there for the near future. With the federal funds rate near 0%, some of the classic conservative retirement investments - such as money market funds and CDs - aren’t even earning returns to keep up with 2%-3% inflation.1,2
If you are in this predicament, a little adjustment to your portfolio may help.
Growth investing is important even when you are retired.It makes sense to be conservative with your hard-earned retirement money. The dilemma is that you can be too conservative when investing it.
If your goal is to minimize risk, you may also risk minimizing portfolio returns. If you owned a longer-term CD when the recession began in December 2007, the income from that CD has dropped by two-thirds since then.1
The goal is to find the middle ground - a level of risk that you can comfortably assume in pursuit of a return that translates to a better income stream.
The potential of the stock market is hard to dismiss - and right now, stocks and funds have the possibility of generating returns that far exceed those of fixed-rate investments.
This is why you don’t want to abandon growth investing.
Remember the "Rule of 72". At 4% inflation, the cost of living will double in 18 years, at 8% inflation it will double in 9 years, and so forth - whatever multiplies to 72. Inflation is about 3% right now, but there’s no guarantee it will stay there. It wasn’t so long ago when consumer prices would rise by 5%, 8%, even 12% a year.
Your retirement income has to keep pace with this inflationary advance. If it doesn’t, you will be left with less and less purchasing power as the years proceed.
Imagine trying to live today on the amount of income you earned 15 or 20 years ago. Wouldn’t that be depressing? Wouldn’t your lifestyle suffer? Factor in medical costs and life’s little emergencies, and the message is clear - you need more income for the future, not the same or less.
What should you do? Considering that stocks may return 10-15% (or better) in a good year, it is pretty hard to dismiss the power and potential of the investment markets in your quest for improved cash flow.
The classic bearish move is to shift money from stocks into bonds, but bonds aren’t providing great yields today and their value will fall when interest rates eventually start to rise. There are other yield sources that may be worth a look.
*Real estate investment trusts (REITs)give you a fractional ownership share of a major-league real estate portfolio, with potential for dividend payments and excellent returns. Private REITs are not publicly traded.
*Dividend stocks stood out during the recession, as investors turned to them for cash flow. Commonly, they are issued by established corporations in essential industries.
*Utilities.Investors often look to the utilities sector for a hedge as utilities stocks have the potential for nice dividends in good and bad market climates.
*Commodity futures. These include precious metals, oil and gas investments, green energy resources, crops and necessities such as timber and livestock.
*Currencies.When the dollar is weak, funds investing in foreign currencies get a boost as most funds out there are dollar-denominated.
You can invest in many of these asset classes not only via stocks and futures contracts, but via managed funds and exchange-traded funds (ETFs). ETFs are nice, as they don’t cost an arm and a leg to enter. They are tax-efficient, and as they trade on exchanges during the market day, they offer great liquidity and flexibility.
Ask us about your options. We have helped other retirees assess and revise their portfolios, with the goal of rebuilding and/or growing their incomes and savings. Call a MEMBERS Financial Services RepresentativeLocated at: FirstLight Federal CreditUnion, today with your questions, or to arrange a time to meet. What you learn might make you feel better about your financial future.
MEMBERS Financial Services Representative, Julie Brand : 915-564-3328
MEMBERS Financial Services Representative, Phillip Boyd : 915-564-3257
MEMBERS Financial Services Representative, Erik Jaime : 575-541-9941