When investing for retirement, whether through a 401(k) Plan, an IRA, or other type of strategy, the question that is often asked by investors over the age of 50 years old is this: Should I be invested in stocks at my age?
This question is more difficult to answer during these times of stress, because investors in general are fed up with the financial markets. When you consider the market bottoms of October 2002 and March 2009, the May 2010 “Flash Crash” and the horrible performance of world-wide markets for Third Quarter 2011, I can fully understand investors’ frustrations. I also understand why some investors may think, “Who needs this—I’m going to go to cash (money market, Certificates of Deposit, etc.)”.
However, despite the recent malaise, it is important to understand that the market averages are positive in the long term. Consider this: During the period of January 1, 1926 to December 31, 2010, (85 years) small stocks averaged growth of 12.1%, large stocks 9.9%, government bonds 5.5%, Treasury bills 3.6% and inflation 3.0%. (Source: Ibbotson Associates, Inc.)
Also important to understand is the cyclical nature of the markets—periods of economic growth are generally followed by periods of decline, just as periods of decline are generally followed by periods of growth. We have been in a generally poor economic period since January 1, 2000, which has been reflected in the markets. But based upon the history since January 1, 1926, it makes sense to believe that we will see better times ahead, and after all the pain and frustration investors have endured over the last decade, we believe it would be a shame for them not to participate in the potential for gains during a very plausible market upswing.
Even for IRA owners taking withdrawals, we still believe that assets invested for retirement purposes are generally long-term assets regardless of who the owner is. Consider a common situation: an individual that retires at age 60 and executes a “lump-sum” rollover into an IRA account. For this individual, we generally recommend an annual withdrawal amount based upon the account value on January 1 each year. When appropriate, we also recommend that this individual receive the annual withdrawals in 12 equal amounts to help minimize the impact of account withdrawals.
When considering stocks, the question for this individual should be whether or not they are willing to commit to a long-term strategy. If they are not, we believe this individual should not be in stocks at all, and this holds true regardless of an investors‘ age. However, it is our belief that an individual pulling from retirement accounts each year based upon the January 1 value of the account should consider investing in stocks long-term, because the long-term performance of stocks has historically provided the best chance not to outlive your assets relative to the historical returns of long-term bonds, cash and cash alternatives. However, you must maintain a long-term discipline throughout good and especially bad market periods.
In order to maintain this discipline and block out the “noise” so that you remain totally dedicated to your long-term investment strategy, we suggest you adhere to the following “Bedrock Philosophies”:
- Talent is the Difference Maker – Important when selecting mutual funds
- Maximize performance by managing risks
- Quickly adjust to changing markets by diversifying assets worldwide
From all of us at La Ferla Group, you have our very best wishes. Look for our full page ad in Dan’s Papers.John G. Macri, CFP® Portfolio Manager, Global Balanced Portfolio La Ferla Group UBS Financial Services Inc. 333 Earle Ovington Blvd., Ste.600 Uniondale, NY 11553-9323 800-645-5155, Fax 877-359-9126, 516-745-8900 firstname.lastname@example.org, www.ubs.com/team/lg
Mutual funds, and money market funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.
Important information about Advisory & Brokerage Services:
As a firm providing wealth management services to clients, UBS is registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures UBS provides to you about the products or services offered. For more information, please visit our website at www.ubs.com/workingwithus.
We offer financial planning as an investment advisory service. This service terminates when the plan is delivered to the client. Note that financial planning does not alter or modify in any way the nature of a client’s UBS accounts, their rights and our obligations relating to these accounts or the terms and conditions of any UBS account agreement in effect during or after the financial planning service. Clients are not required to establish accounts, purchase products or otherwise transact business with us to implement their financial plan. Should a client decide to implement their financial plan with us, we will act as either a broker-dealer or an investment adviser, depending on the service selected. For more information about our financial planning services see the Firm’s Financial Planning Disclosure Brochure
Neither UBS Financial Services Inc., nor any of its employees provide tax or legal advice. You must consult with your tax and legal advisors regarding your personal circumstances
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
©2011 UBS Financial Services Inc. All rights reserved. Member SIPC