If you’re like most investors, you’re searching out for the best investment strategies for these gloomy economic times.
In the latest quarter ended June 2012 GDP grew at only 1.5%, signaling a bleak economic outlook for 2012 and beyond. Financial crises in Europe and budgetary woes in the U.S. will further slow growth in the second half of 2012. For investors, individuals and institutions alike, all this means chaos.
But what if you’re a retiree (or an investor approaching retirement)…where and how will you invest your money to safeguard your retirement?
Here’s my answer: create a portfolio asset allocation tailor-made for a financially rewarding retirement! To make this work your retirement investments should reflect your appetite for risk, age, goals, and other factors – as well as the realities of our economic situation.
The process starts with targeting funds to suitable asset classes and sectors. Then evaluate the right allocation for each within your portfolio. Lastly, incorporate options to protect your principal and generate extra income in the process.
Here’s what I recommend as an optimal retirement asset allocation designed to produce income, with maximum asset protection, regardless of the market and economic storms of our times. Here’s what’s key: these investing strategies are built on my core philosophy which is for retirees to get paid to wait out these storms.
1. Low duration, high Alpha-plus bond portfolio. Here’s one of the best ways for retirees to generate high relative income (Alpha-plus) and protect their investments from today’s volatile conditions: a customized blend of investment-grade bond & bond-equivalents from a mix of E.U., Emerging Market Sovereign debt, and U.S Corporate High Yield bonds.
An Alpha-plus bond fund targeting yield of about 5% (spread of 450+ basis points versus US Treasuries) and a five-year maturity represents for retirees an attractive investment strategy. Recommended allocation: 40%.
2. The Energy and Utility Equities sectors. These areas, which continue to draw new investment money and outperform all other sectors, offer excellent pay-as-you-wait income with their comparatively high (qualified) dividends. Recommended allocation 20%.
3. High-Yield Bonds. U.S. Corporate High-Yield bonds, with yields about 450 to 600 basis points above US Treasuries at maturities of 10 years or less, offer good returns for the level of credit & interest rate risk – great way to get paid to wait with minimal interest-rate risk. Recommended allocation: 20%.
4. Emerging Markets. For the first time ever some emerging markets have higher expected growth rates and lower valuations than those in the U.S. Their sovereign debt is also attractive. Take Brazilian, Australian and Russian Government Bonds, for instance. They currently offer attractive yield spreads with less structural & political risk than U.S. Government bonds. Recommended allocation: 5%.
5. The Metals sector. While long-standing expectations for a global slowdown has pushed the metals sector into oversold territory, look for the pendulum to swing in the other direction. Gold, silver, oil & gas companies, selected energy limited partnerships offer secure investment opportunities for growth and protection from inflation, a falling dollar, and other by-product risks of loose monetary policies. Recommended allocation: 5%.
6. Options. Utilizing options like portfolio insurance to protect your principal and generate additional income is in most cases ideal. But, given today’s turbulent market and economic conditions, it’s a must-have in any retiree portfolio. Recommended allocation: 10%.
So don’t let 2012’s bleak forecast cloudy up your retirement investing!
When you approach retirement, a sound investment strategy becomes more important than ever as you seek to secure your finances during your golden years. A well-structured investment allocation strategy assures retirees maximum income along with maximum asset protection, regardless of the economic storms ahead.