Almost every day, people ask what I think about the state of the economy and what investors can do about it.
Plenty of people believe our financial and political systems are broken, run by leaders who have committed fraud, at least indirectly, and who cannot fix things without giving up their gains, relinquishing their power and possibly implicating themselves.
I believe this has been true for hundreds of years. We are just more aware of it today.
Personally, I have no doubt that we are heading for a severe decline that will do major damage to our financial system. I don't know when it will happen or how it will play out. Will it take a year? A decade? A century?
There's no way to know, but I believe there is a reasonable chance it will happen in my lifetime. And I think it's close to a sure thing in my kids' lives.
So what should investors do? There's certainly no perfect answer, but I see a lot of people doing what I regard as dumb things. They put all their money into bonds or gold or rental properties. Or they use most of their money to buy fixed annuities. In every case, I think that's the wrong thing to do.
For what it's worth, I'll share nine steps with you that I've personally taken:
I worked longer than I needed to and saved more money than I think I’m likely to need. This gives me a cushion so I can make adjustments as my cost of living (predictably) goes up and if the value of my portfolio declines.
Over-saving is just Investing 101, if you will. I’ve never heard anybody express regret for doing this.
I follow a flexible retirement withdrawal plan, each year taking out 5% of what my portfolio was worth on the most recent Dec. 31. To some extent this lets the market determine my budget. If the market does well, I get a raise. If the market falls, I tighten my belt.
I hold half of my portfolio on a buy-and-hold basis, using index funds, and the other half using mechanical market timing which is not dependent on forecasts, opinions or judgments. These two approaches are non-correlated, and the combination gives me peace of mind.
In good times, my buy-and-hold portfolio almost always does better. During bad times, my timed portfolio almost always does better. There’s always part of my portfolio that makes me feel I am participating in what’s working well, and there’s always another part that gives me a sense of protection.
I have structured my buy-and-hold portfolio to have about the same level of risk and volatility as my timing portfolio. Read on to find out how I have done that.
I keep half of my buy-and-hold portfolio in U.S. government bond funds. When the market goes seriously south, there is normally a rush of capital into the highest-quality fixed-income asset class. This can boost the value of my bond portfolio even as the equities decline.
I keep 30% of my market-timing portfolio in bond funds for the same reason. Why not 50%? Because the timing systems I use are designed to get me out of the market, into cash, during major declines. Hence there is less need for bonds to do that — and more that can be invested in equities.
I periodically rebalance my portfolio to restore my target asset allocations. This keeps my risk level where I want it. In the process it forces me to buy some of what has been lagging and sell some of what has been doing well.
That’s called buying low and selling high. You’ve probably heard of it — and you probably know it’s not necessarily easy to do. Rebalancing makes it easy and automatic.
I diversify my equity holdings so that they include a balance of U.S. and international funds as well as small-cap, large-cap, value and growth funds. I’ve been preaching this level of diversification for more than 20 years, and I have seen it pay off time after time.
In addition to what I have described, since 1995 I have had an account in a hedge fund that uses its own combination of asset allocation, timing and leverage. Although I don’t believe many retirees should invest this way, I have made this investment with money I don’t think I will ever need.
This fund has done well for me, and I am comfortable with its relatively high volatility. I have periodically taken my profits from this fund instead of letting them build up and increase my overall level of risk.
I don’t try to do all this myself. I have a professional adviser who takes care of it all.
My wife is knowledgeable about all these accounts and comfortable with our adviser. So if I should expire prematurely, she can go about her life without having to worry about her financial security.
Obviously, my plan isn't ultimately foolproof; unexpected things can occur at any time. But this plan includes everything I know how to do, and it gives me peace of mind as I contemplate the uncertain future.
Richard Buck contributed to this article |
发表于 2013-5-2 21:49
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