In a lot of aspects, these are uncertain times. We don’t know what new policies will be introduced following the presidential election. We don’t know how much interest rates and inflation will change in the future. We don’t know how the markets will respond.
Many people approaching retirement have yet to determine an age to leave their jobs. When developing a financial strategy, it’s important to consider all the variables, including taxes and potential Social Security benefits. As a financial advisor, we can help you identify your retirement goals, and then, together, monitor your overall financial strategy to help you stay on track.
It’s also important to ensure both spouses understand what’s involved in a financial strategy. Too often, the spouse who handles investment responsibilities is the one who passes away first, leaving the surviving spouse with a distinct lack of financial prowess.1
During uncertain times, many investors rely on diversification as a means of maintaining balance in a financial strategy. For example, assets that tend to perform in an environment of deflation include government bonds, corporate bonds, high dividend-yielding stocks and high-quality stocks. When inflation rises, investors tend to look at commodities, resources and emerging markets for steady performance.2
Other sectors that have performed well during inflation include the energy sector, which, historically, has outperformed some other industries by a median of 37 percent. On the other hand, materials and industrials have posted only mid-single-digit relative returns during inflationary periods.3
Another asset that outperforms during inflation is real estate. As a hard asset, hotels, self-storage and apartment units can adjust rents to take advantage of higher inflation.4
With interest rates in uncertainty mode, it’s difficult for a conservative investor to commit to long-term bond maturities because the yield value could drop significantly if rates rise. For example, an investor who purchases a 30-year U.S. Treasury bond today may lock into a 2.50 percent yield for the next three decades. If yields then increase by just one percentage point, that bond’s price would drop by more than 21 percent.5
The markets continue to transform in response to changing demographic and economic trends — some of which appear to be long term. Many people are hesitant to invest in high-growth assets because of the risk associated, and they remember what happened during the recession.
For those nearing retirement, it’s important to remember that the purpose of investing isn’t simply to make money; it’s to help individuals work toward their financial goals. Whatever your personal goals are, remember that we’re here to create financial strategies using a variety of investment and insurance products to help you pursue them.
1 Paul Sullivan. The New York Times. Oct. 7, 2016. “Making Financial Management Both Spouses’ Job.” http://www.nytimes.com/2016/10/08/your-money/how-to-make-financial-management-both-spouses-job.html?rref=collection%2Fcolumn%2FWealth%20Matters. Accessed Oct 30, 2016.
2 Merrill Lynch. July 7, 2016. “Politics & the Markets: What You Need to Know.” https://mlaem.fs.ml.com/content/dam/ML/Articles/pdf/ml_Transcript_Michael-Hartnett_Midyeay.pdf. Accessed Oct 29, 2016.
3 William Watts. MarketWatch. Oct. 25, 2016. “One chart shows which sectors do best, and worst, when inflation expectations rise.” http://www.marketwatch.com/story/one-chart-shows-which-sectors-do-best-and-worst-when-inflation-expectations-rise-2016-10-24?link=sfmw_tw. Accessed Oct 29, 2016.
5 Randall W. Forsyth. Barron’s. Oct. 28, 2016. “How to Build a Bond Ladder.” http://www.barrons.com/articles/how-to-build-a-bond-ladder-1477653096. Accessed Oct 29, 2016.
This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
Content prepared by Kara Stefan Communications.