The Retirement Guys: Buy, Hold, Or Sell Stocks Now?Written by Nolan Baker Mark Clair | | firstname.lastname@example.org
This year we have seen major gains in the stock market indexes. This has been followed by gains in the past four years. This now puts many of the major stock market indexes to all time record high. Some investors are now starting to feel comfortable with getting back into the stock market, while other investors are starting to wonder if it is time to sell. So what should you do?
The answer depends upon if making a change would increase the probability for an investor to be able to reach their financial goals. Just because the stock markets are at an all time high, doesn’t mean it’s time to sell. It also doesn’t mean that all stocks in the index are overpriced and aren’t attractive to buy. Let’s remember in the short term the performance of the stock market is beyond your control so we recommend considering the following three guidelines:
Guideline #1: Reasons to buy stocks:
The six months from November to April has gained 473% for the SP 500 since 1990. That is nine times greater than the 52.6% return achieved during the May through October time frame according to BTN Research. Although the S&P 500 Index is an unmanaged index that you cannot invest directly into, it shows that, if history repeats, there could be more market gains to come.
The younger an investor is the more time they have on their side for being a successful investor. In most cases any younger worker should start to save a portion of their income in a retirement savings account, such as a 401K or an IRA. Ask any retiree and you will learn the value and importance of saving early.
Stocks can also be a great option for part of a retiree’s savings. Many times the goal of stock investing for younger investors is growth. Although growth is still important for a retiree, income can be a more important goal during retirement time. Certain dividend paying stocks still offer great income options for retiree’s that are not available in most traditional fixed accounts.
Guideline #2: Reasons to stay in stocks:
Staying in stocks can make sense for most investors at any age for part of a portfolio. Yet, while stocks indexes are close to or at an all time high, it is important to review your downside risk management strategy. In our office, we call it having “circuit breakers” in place on stock accounts. Instead of trying to time the day to day stock market, the primary objective of adding this into a portfolio is to protect against significant losses, but with the technology tools available today, protecting gains can also be accomplished as well.
Long term investors, with little to no current need of their investments and who avoid allowing their emotions to get involved in making investment decisions, may also be better able to ride the ups and downs of the stock market. Looking back at previous years we learn that, over the long term, owning stocks can be a great investment.
Guideline #3: Reasons to sell stocks:
Consider paying off your debt. For a retiree having debt can be a major drawback on having a relaxing retirement as it often times takes a large part of the monthly spendable income to cover debt payments. A lot of time, I have told many investors I have met with that it’s ok to use the profits, just try not to touch the principal. Investors on track and ahead of their goals should review paying off any outstanding debts.
Investors who are more conservative could sell some stocks to protect gains. Don’t forget about what happened in 2008. Stocks have grown significantly and an investor’s portfolio may have become out of balance. Bonds have gotten a lot of negative media lately, but not all bonds are bad investments. They still can be used to help diversify a portfolio. Principally protected investments are also safe places to move gains into.
Protect income. Add up the income sources, work, social security, pension, and investment income. We believe that it is important to have a plan B in place with income needs. This can be accomplished by keeping three to five years worth of money in safe investments. In the event of a major stock market downturn, an investor could change their investment income strategy and draw current income needs some the safe money and not be forced to sell stocks in the down market.
For more information about The Retirement Guys, tune in every Saturday at 1 PM on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550
Diversification is a strategy that is designed to reduce risk, it doesn’t not guarantee against loss.