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Six Steps You Can Take to Financial Prosperity

Six Steps You Can Take to Financial Prosperity

USA Today

More than ever, invest prudently

Once you’re retired, you probably won’t have fresh income to make up for investment losses, so you have to be especially prudent. Which means don’t chase red-hot stocks and don’t try to earn a living as a day trader.

But don’t be too cautious, either. In addition to income-producing investments, such as bonds, you need stocks, too. In the long term, stocks tend to outperform bonds or bank CDs. And retirement could last longer than you imagine.

“If you make it to 65, you have a great chance of making it to 85,” says Sam Stovall, chief investment strategist for Standard & Poor’s.

Within your stock holdings, be sure you’re diversified. “Don’t ignore international stocks,” Stovall says. If you do, you could miss some rich opportunities. The U.S. stock market represents just 35% of the world’s stock value, he says.

Stovall’s advice:

•Limit any investment costs. Every dollar you give to a broker, a bank or a mutual fund is a dollar you won’t have in retirement. If you have an adviser, make sure he or she earns the money you pay.

•Don’t let emotions carry you away. If you panic when Wall Street does, you’ll likely regret it later. Choose an asset allocation for your portfolio — say, 40% stocks, 40% bonds, 20% money market securities — and stick with it.

•Don’t stretch for yield. Retirees often rely on income-producing bonds, dividend-paying stocks and annuities. But the higher the yield, the higher the risk, warns Steve Janachowski, a financial planner in Tiburon, Calif. If you own a bond that pays far more than a comparable Treasury security, you might be absorbing more risk than you realize. Juicier bond yields tend to come from issuers that may not be around in a few years. That’s a risk you can’t afford.

By John Waggoner

Courtesy of © 2009 YellowBrix, Inc.

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