The summer of 2013 is not over yet. We Minnesotans get at least a few more weeks of road construction and mosquitoes.
The stock and bond markets in 2013 have been as volatile. I confess that even professional investment advisors are confused. All-time high stock markets and record low interest rates rarely occur at the same time.
The investment management approach that I have taken with many of my soon-to-be retired clients may be of interest to those readers of this blog post. I know that many readers fall into the same investment objective category.
Investment management doctrine states that a pre-retirement investor is supposed to use a combination of stocks and bonds in order to generate income in retirement. This is easier said than done with an expensive stock market and near record low interest rates.
It may be time to consider taking some of your stock market profits now in order to preserve your recent investments gains.
You don’t have to sell your best-performing stock market investments. But you certainly have some stock market laggards that are at current price levels not seen in several years. Those are the best SELL candidates now.
The proceeds from those stock market sales would then be placed in the safety of a money market account now. Your stock market gains will be safe, and you will have money available to reinvest in the two most likely investment environment scenarios going forward.
Scenario number one is when, not if, interest rates rise. In order to take advantage of higher interest rates, you need to have money to invest at higher rates. You will have more income in your retirement years when interest rates rise.
This investment strategy takes more than a little bit of patience. Think about the alternative. You may ride the stock market back down in price, and have no money available to invest when interest rates rise. Is that worth a little patience now?
The second scenario has to do with a stock market pullback. No one can predict with accuracy a stock market decline during a specific time period. It would not come as surprise when interest rates do begin to rise, the stock market experts will have more reasons to sell stocks and buy bonds.
If you sell some of your stock market laggards now, you will have money in the future to take advantage of higher interest rates.
Ric Lager
Lager & Company, Inc.
