Nearing (Or In) Retirement? Here Are 5 Rules | ETF Trends

As many saw their nest eggs take a blow in 2008, most of the old rules of investing using stocks and exchange traded funds (ETFs) are no longer applicable.

Individuals are living longer, health care costs are increasing and social security benefits are dwindling, forcing many  retirees to require more growth in their portfolios during the coming years and decades.  In order to achieve this, Katy Marquardt of US News & World Report suggests the following rules to followL

  • Separate retirement money into different categories.  Three categories to consider are short-term funds, which reside in very low-risk investments, such as high-quality bonds; intermediate-term money goes in a balanced mix of stocks and bonds, such as a 50-50 or 60-40 split; and long-term investments starting with five-year time horizons are heavier on stocks.
  • Don’t look too far for yield, because decent yields can be tough to locate. Treasuries are the safest, but they yield little. If you want a bigger yield, you’ll have to take on some risk
  • Consider municipal bonds.  They have excellent tax benefits (they’re exempt from federal taxes and in some cases are exempt from state and local taxes). Choose high-grade, general-obligation bonds.
  • Go for dividends.  The main reason behind this is because dividend income, which is generated from company profits paid out to shareholders, helps offset fluctuations in a stock’s share price, creating a cushion during turbulent markets.
  • Consider alternative asset classes. This includes classes such commodities, annuities and real estate, just to name a few.

The most important rule of all is to have a strategy, and better yet, use it. We follow the trend lines to determine what positions we’re taking, and a stop loss determines our sell point. Read more about the strategy in our new book, The ETF Trend Following Playbook.

For more stories on trend following, visit our trend following category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.