The long bull market has helped old and young investors alike build their portfolios, but with equities pulling back, retirees should recognize the risks of being overexposed to stocks.

More older Americans have allocated a greater portion of their retirement portfolios to the stock market. According to Fidelity Investments data, 20.4 million 401(k) investors reveal that almost 40% of 401(k)s among investors age 60 to 69 hold 67% or more of their portfolios in stocks, the Wall Street Journal reports. Among clients at Vanguard Group between ages 65 and 74, 17% of these investors have 98% or more in stocks.

Financial experts have long advised young investors to allocate heavily in stocks to grow their investments during their younger years. However, as Americans near retirement age, they should begin shifting to a more balanced stock and bond mix to better hedge against bear markets heavily affecting their nest eggs.

Despite the recent selling pressure, with the S&P 500® and Nasdaq breaking into correction territories, Baby Boomers who were born between 1946 and 1964 don’t appear to be selling many stocks to balance portfolios, advisors and other financial planners warned. Older Americans actually seem emboldened by the relatively quick bounce-back from the bear markets. Additionally, many don’t see any other attractive alternatives in a low-yield environment.

“Some feel almost ho-hum about stock-market volatility,” Paul Auslander, an advisor in Clearwater, Florida, told the WSJ. “But they’re getting older and they have less time to make up for losses.”

Make The Right Assessment

William Bernstein, an independent financial advisor based in Eastford, Connecticut, advised retirees to assess how much stock market risk they can afford to handle. In general, for those more risk-averse, Bernstein recommended cutting equity allocation to reach one’s desired stock allocation.

“Just bite the bullet,” Bernstein told the WSJ. With the S&P 500 averaging an annual return of more than 10% over the past decade, “it’s not a bad time to be taking profits.”

As retirees look for ways to maintain their retirement accounts through their golden years, they can turn to ETF strategies like the Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI), which seeks to provide current income with a measure of downside protection.

NUSI follows a rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index, an index of the 100 largest non-financial stocks on the Nasdaq exchange. The ETF may potentially complement traditional equity and fixed income allocations or function as a possible hedge for investors.

The Nationwide Risk-Managed Income ETF establishes a collar strategy to generate monthly income. Collar strategies involve holding shares of the underlying stock while at the same time buying protective put options and writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specified price and on a specified date. A call option gives its owner the right but not the obligation to buy that asset instead.

For more news, information, and strategy, visit our Retirement Income Channel.


This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.

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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.

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