Noted retirement investing expert Dennis Miller looks at how market volatility is giving investors fits and provides sage advice on how to stay in the game but still sleep soundly at night.
Earlier this summer I cautioned readers to tighten up their stop-losses as the market was flying high and due for a correction. The correction came in late August, and now the market is gyrating like a stripper when the fleet comes in to port. So now what?
There are lots of “theories” about investing, but one fact when it comes to investing retirement money. The fact is your nest egg has to last you and your spouse for the duration. While making money is a factor, avoiding losing it to the point of having to alter your lifestyle or go back to work trumps all.
A lot of retirees got stopped out of some, but not all, of their positions and are holding cash wondering what to do next.
Your inbox has been flooded with pundit’s advice, predictions, and product peddling since it happened. The advice runs the entire spectrum from “just hold on” to “be careful” to “urgent warning.” Which ones should we listen to?
What are your priorities? Retirees want to safely preserve their nest egg, and provide enough income to help pay the bills.
Right now the investment options are shaky.
- Cash. Congratulate yourself if you got stopped out of some positions and now have cash to deploy. Holding cash today is losing ground to inflation; however it may be the least risky option.
- Bonds. Bond yields stink. Alan Greenspan warns about a bubble ready to burst, “…it was appropriate to be very afraid of the bubble. He said the bond market price-to-earnings ratio was at an “extraordinary unstable position.” Don’t be in any hurry to buy bonds. The Federal Reserve is not sending clear signals.
- Stocks. Don’t fall for the buy and hold mentality. When you are retired, your capital has to last. A 40%-50% market drop may come back, but can you guarantee it will happen in your lifetime? Use extreme caution.
- Gold and precious metals. Famed pundit Marc Faber says, “There Is No Safe Asset Anymore, so Buy Gold and Precious Metal Stocks.” Gold should be part of every investor’s core holdings to protect against inflation. Speculating with retirement money is a recipe for disaster.
What do do now
- Review your portfolio and make sure your stop losses are current.
- Take profits on positions where you feel it is appropriate.
- If you need to increase your core holdings now is a good time.
- Don’t jump into the market because you feel “you have to do something.” While there’s always a good reason not to buy a stock, until you see a darn good reason to buy a stock, holding on to your cash might be the least risky choice.
- Ignore the hype. Too many newsletters trumpet, “Had you bought this stock you would have had a 2000% gain.” They infer their hot tip is your road to riches. Until the economy, Federal Reserve, and the markets show clear signs, extreme caution is in order. Clear signs will appear; it just takes a while.
I believe success is when preparation meets opportunity. Your stop losses are doing the trick; you avoided catastrophic losses and protected your nest egg. Good opportunities for redeploying your capital will come along for those who are not in a hurry.
This article originally appeared in Miller on the Money.
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