Everything in moderation. There’s something to that advice for building a retirement portfolio, according to one expert.
“When you hear about investments, people’s mindset goes immediately to stocks,” Mitlin Financial founder Lawrence Sprung, who is also the author of “Financial Planning Made Personal,” recently told Yahoo Finance Live (video above). “And it doesn’t have to just be stocks. You want to build out a balanced portfolio.”
That includes assessing your risk tolerance and time horizon and diversifying your portfolio with stocks, less volatile investments like bonds or total stock market index funds — mutual funds that track the total returns of the entire US market — and perhaps a dash of alternatives.
In fact, with the market uncertainty of the past year or so, it’s safer to be as diversified as possible.
“It’s really up to each individual to build out an asset allocation that is right for them,” Sprung said. “That’s going to include stocks, that’s going to include bonds. And within stocks, that may include several different types of stocks, large-cap, mid-cap, small-cap. Bonds may include government bonds, international.”
You might also consider making some new retirement plan contributions into an alternative investment, like a real estate investment trust or a mutual fund that buys them. Commodities might be a good place for an inflation hedge, he added. “Real estate is another good option.”
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How much in stocks?
Owning stock is essential for those who have a long-term horizon, say, two decades, until they plan to start dipping into their savings. And the standard piece of advice has been to take 100 or 110 minus your age and that’s the percentage of your retirement savings that should be invested in equities.
For a 57-year-old, for instance, her retirement account might be 65% in stocks and 35% in bonds — a breakdown that suits her age if she has a moderately aggressive risk tolerance.
That’s to take advantage of the upside potential growth over time that stocks typically deliver when compared with fixed-rate options such as bonds, money market, or certificates of deposit.
But when the stock market is on a tear, it’s tempting to go a bit bonkers. Discipline is critical. When you let the stock portion of your portfolio get overweighted, it makes your savings vulnerable when the market turns south.
Other income streams
There are myriad channels you may have to tap for retirement income from a traditional pension to your employer-provided retirement plan, such as a 401(k), to income-producing real estate properties or a small business you own. Whatever that may be, it’s something that folks should start considering and more importantly planning for.
While rental properties could be part of your retirement plan, many retirees don’t want the hassles of managing that kind of investment.
“If you’re not somebody who wants to be that owner-operator, you could look at real estate investment trusts, where you’re going to own a piece of a portfolio and perhaps get an income stream,” Sprung said. “There’s really a flavor for everyone, it’s just a matter of finding what’s right for you in terms of what your goals are, your risk profile, and what your time horizon is.”
Of course, there are plenty of other alternative investments that people dabble in, but they are often riskier.
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“I don’t think the average person has the ability necessarily to invest in a wine collection unless they’re doing it in some kind of private placement and group platform,” he said. “Crypto obviously is a little more accessible. Crypto is something that they can in most cases easily convert to cash, assuming that crypto is still around and viable.”
Social Security has always been a major income stream that retirees rely on. But Social Security’s reserves are projected to run out in 2033 if Congress doesn’t act. At that point, Social Security will only cover 77% of full benefits.
It’s a big problem, and one that Capitol Hill is not yet acting on, which raises the question of whether millennials and Gen Zers should expect to lean on Social Security as income in retirement.
“The reality is the vast majority of folks who are retiring are really relying heavily on Social Security,” Sprung said. “It’s important to the fabric of the country to maintain that status of Social Security. So I don’t think they’re going to get rid of it, but they are going to tweak it.”
“So it’s going to be very important for people like millennials to make sure that they’re positioning themselves in a way to have other income streams.”
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
