Archive for the Advice and Guidance Category

Ask any financial advisor how to invest for retirement, and his or her answer will invariably include the term “asset allocation.” What, exactly, does that mean? And how can you apply it to your own situation? This article aims to answer these questions.
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Many baby boomers nearing retirement face an unpleasant dilemma: they haven’t saved enough for retirement, yet don’t have that many years left within which to do so.

If you’re in this situation and are self-employed, you may want to check out the possibility of opening a SEP-IRA, or Simplified Employee Pension Individual Retirement Account.

Unlike regular IRAs, which have relatively low contribution limits of $5,000 or $6,000 per year, SEP-IRAs enable you to sock away as much as $45,000 annually. This can be particularly helpful for baby boomers who need to accumulate a lot in a relatively short amount of time.

Check out the Small Business Boomers Blog for more on this exceptional opportunity.

Most future retirees see the recent plunge in share prices as a disaster. They’ve watched their nest eggs shrivel, and are bracing themselves for even worse. Some have ditched their stocks altogether and are now in ultra-safe CDs yielding a few percentage points at best.

A few brave souls, however, are wondering whether the current crisis presents an opportunity. Following the traditional contrarian mantra of “buy when everybody else is selling and sell when everybody else is buying,” they’re looking for bargains amid the wreckage of the stock market.
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Times like these aren’t easy for retirement investors. Every day, it seems, brings unsettling news and commentary. This bank failed. That stock tanked. A bailout is necessary. A bailout would be a reward for those who caused the problem. And so on.

The news is accompanied by increased volatility in the financial marketplace. Sudden drops in value of stocks and bonds are followed by equally unpredictable rallies. Investments are starting to look less like piggy banks and more like lottery tickets.

What’s a future retiree who doesn’t want to gamble, but merely to safely build a nest egg, to do?

AAFR offers these guidelines for investing during troubled times
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The recent wild gyrations—mostly downward—of stock market prices have badly shaken many future retirees. Some have seen their nest eggs drop precipitously, and are wondering what to do.

Our advice: whatever you do, don’t panic. Attempts to “time the market,” i.e. to “buy low and sell high” usually fail, for two reasons. First, there is no reliable way to predict what the market will do next no matter what the situation. (If there were, anyone who possessed it could quickly become a billionaire.) Second, emotions tend to cloud judgment, making matters even worse. Right after a big dip, many investors are tempted to bail out at what often turns out to be the worst possible moment (think of the people that sold stocks in 1932, which was the best buying opportunity of all time). Similarly, when markets go up, up, up, there’s a big temptation to buy at what may well be the peak.

If you decide that the market’s volatility is unacceptable to you, you may wish to reallocate some of your assets. This usually means exchanging riskier investments for safer ones: selling stocks and buying fixed-income investments. Shop around for the best rates on CDs or bonds. Then take a calm look at your stocks and stock mutual funds, and decide how much you wish to sell. If it’s a large portion, consider selling gradually, and transitioning into fixed income investments. But don’t engage in “panic” selling. In uncertain times, more than ever, you need to keep a level head.