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4 Steps To A More Secure Investment Portfolio For Your Retirement

Understand the hidden risks in your portfolio

When asked to identify what forces pose risks on investment returns, few investors recognize inflation as a likely counterpart.  Yet for traditionally risk-averse retirees, increasing consumer prices often pose the greatest risk of all.  Older investors have historically favored lower-yielding investments such as CD’s, money market accounts and T-bills which have a far lesser chance of maintaining purchasing power.  Inflation is expected to inch upward as the economy gains its footing, therefore investment portfolios must be tailored accordingly. 

Be willing to diversify

Investors must be “willing” to diversify.  Diversification is necessary due to current high stock market valuations and a 40 year low point in the interest rate cycle.  It is important to look beyond traditional stock and bond allocations to find steady, less risky returns.  True diversification is the process of spreading investment funds across asset classes that tend not to move in tandem.  While large and small U.S. stocks move in nearly identical patterns, asset classes such as REITs (real estate securities), commodities and hedge-like investments exhibit a non-similar return pattern to the S&P 500.  The combination of these investments in conjunction with bonds and large U.S. stocks helps protect the overall portfolio in troubling market conditions, yet participate in market gains.  Portfolios built on this premise are likely to earn returns typically associated with stocks, while exhibiting far less risk in fact almost bond-like risk levels. 

Understand the relationship between bonds and interest rates

There is no doubt that fixed income investments play a critical role in the formation of a retiree’s portfolio.  However, the pricing of nearly any fixed income instrument is directly related to movements in interest rates.  Prices of bonds go down as interest rates rise.  Unfortunately for those currently nearing retirement, this can have a dramatic effect.  With rates at near forty-year lows, it may only be a matter of time before bond prices begin to crumble as interest rates rise.  It is important to note, however, that not all fixed income investments have the same sensitivity to interest rate fluctuations.  Some fixed income vehicles such as bank loan funds, stable value funds, and Treasury Inflation-Protected Securities (TIPS) adjust their values in the same direction as interest rates.  Investors facing retirement should examine the fixed income investments in their portfolio to determine how sensitive they may be to shifts in interest rates.

Make tax-efficiency a priority

Even in retirement, the lack of tax efficiency remains one of the biggest detriments to overall portfolio performance.  The following are a few tips to increase efficiency:

  • Keep detailed records of cost basis – this enables investors to identify specific share lots for the tax-efficient selling of gains, and the timely harvesting of losses
  • Do not reinvest dividends – this allows for an easier and more tax-efficient portfolio rebalancing as well as provides cash to live on, and spares investors from a tax-basis paperwork nightmare
  • Be aware of asset location – fixed income investment, hedge-like investments and REITs, where possible, should go in tax-advantaged accounts because the majority of their return is made up of ordinary income, while equities are prime candidates for taxable accounts

Building a portfolio that takes into account both hidden and obvious risks, diversifying to minimize those risks, and avoiding unnecessary income taxes will provide a safe and secure retirement.

For further information, contact Diane M. Pearson, CFPä at (412) 635-9210 or e-mail her at legend@legend-financial.com.



INDEX
  • Now Is A Perfect Time To Open A New Business
  • Do You Know If Your Business Really Is Small?
  • 4 Estate Issues For Business Owners
  • Self-Employed? Map Out Tax Details
  • 10 Easy Steps To Take If Opening A New Business
  • To Buy Or Not To Buy: That Is The Business Franchise Question
  • Ever Considered Helping Your Adult Child Open A Business?
  • Do You Know What Kind Of Business Not To Open?
  • Do You Plan To Move Your Business To A New State?
  • Dispel These 7 Popular Myths About Retirement
  • 4 Retirement Plan Options For Your Small Business
  • Are Stocks Overpriced And Forming A Bubble?
  • 4 Steps To Creating A Dynamic Business Budget
  • Can An Underfunded Small Business Startup Be Successful?
  • What Happens If You Have Excess Capital Losses?
  • This Is Not Granddad's 'Defined Benefit Plan'
  • Despite Much Pessimism, Slow Growth Persists
  • How To Take Your Section 179 Deduction To The Max
  • Squeeze More Out Of Bonus Depreciation Deductions
  • A Common Error In Powers Of Attorney
  • For The Self-Employed: 4 Retirement Plan Choices
  • Which States Are The Most Friendly To Businesses?
  • How Economic Myths Distort Investment Outlook
  • Don't Forget About Roth 401(k)
  • REITs: A Great Diversification Investment
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • The Twenty Top Tax Breaks In The New 2010 Tax Act
  • Investing Defensivley Does Not Mean Deserting Stocks
  • 401(k) Alternatives For Business Owners
  • Tax Court Okays Deducting Cost Of MBA
  • Employers Find Ways To Mitigate Liability On 401(k)s
  • Working Longer: What's A Post-Retirement Job Worth?
  • Slash Taxes By Swapping Like-Kind Assets
  • Transferring The Family Business To Your Heirs
  • Business Owners Get Big Tax Cuts In Recovery Act
  • Move Fast To Corral Emergency SBA Loans
  • Risk Management
  • Estate Taxes And The Obama Administration
  • Gifting A Business Can Cut Estate Taxes
  • A Little Bond Logic Yields Insights
  • Avoiding The IRA Rollover Crackdown
  • Ruling Cites Business Owner Responsibility to 401 (k) Plans
  • Ruling Cites Business Owner Responsibility to 401(k) Plans
  • How Much Is Your Business Worth?
  • Managing Cash Flow In Tight Times
  • When Times Are So Scary, Opportunities Emerge
  • Avoid Being Accused Of Insider Trading
  • Lifecycle Funds May Pose A Hidden Danger
  • Funding A Friend's Business Venture
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Small Business And Work Opportunity Tax Act
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • Timber As A Liquid Investment
  • Timber Facts
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • A Primer On Managed Futures
  • Identity Theft: What Documents Should You Shred Or Store?
  • The Case For Industrial Metals
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • Know The Score
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft : Help Is On Its Way
  • Identity Theft: Tips To Protect Yourself
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • IRS Refuses Change Of Section 179 Election To Expense Depreciable Property
  • Small Businesses Need To Be Aggressive On Costs
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Home Office Deductions: Hoops To Jump Through
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Year-End Tax Defferal Planning
  • How To Find A Great Financial Advisor
  • Is It Time To Find A New Financial Advisor?
  • What Is Risk?
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • Businesses Receive Temporary Depreciation Bonus
  • Understanding Deflation
  • Is Your 401(k) Plan A Failure?
  • Succession Planning: Developing A Plan For Your Business
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Tax Issues To Consider When Buying A Long-Term Care Policy
  • Yesterday's Great Companies
  • Businesses Should Be Aware Of States' Use Taxes
  • Expanded Retirement Plan Contribution Limits Create New Opportunities For Business Owners
  • Succession Planning: Developing A Plan For Your Business



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