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 indices. This follows gains made in the past four years. This now puts many of the major stock market indices at all-time record highs. 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 onwhether buying or selling would increase the probability of an investor reaching 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 that in the short term the performance of the stock market is beyond your control so we recommend considering the following three guidelines:
Guideline No. 1: Reasons to buy stocks
The six month period from November to April has gained 473 percent for the SP 500 since 1990. That is nine times greater than the 52.6 percent 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 he or she has on their side to successfully invest. In most cases any younger worker should start to save a portion of their income in a retirement savings account, such as a 401(k) 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. Certain dividend-paying stocks still offer great income options for retirees that are not available in most traditional fixed accounts.
Guideline No. 2: Reasons to stay in stocks
Keeping part of the portfolio in stocks can make sense for most investors at any age. Yet, while stocks indices are close to or at an all time high, it is important to review the downside risk management strategy. In our office, we call it having “circuit breakers” in place on stock accounts. Instead of trying to time the stock market, the primary objective of adding this to a portfolio is to protect against significant losses. With the technology available today, protecting gains can also be accomplished as well.
Long-term investors with little to no current need of their investments 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 No. 3: Reasons to sell stocks
Consider paying off your debt. For a retiree having debt can be a major drawback to a relaxing retirement as it often takes a large part of the monthly spendable income to cover debt payments. I have told many investors I have met with that it’s O.K. 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 gotten out of balance. Bonds have gotten a lot of negative media attention lately, but not all bonds are bad investments. They can still 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 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 his or her investment income strategy and draw current income needs from 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 p.m. 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 does not guarantee against loss.