Personal Finance

10 Best Stock Market Strategies for Baby Boomers

By Michael McDonald

The baby boomer generation is starting to retire, and with that comes a new set of challenges. Investing can be scary at any age, but that becomes particularly true as people grow older.

The fact that stocks have returned an average of about 11 percent over time does not help the person who puts in money at the top of the market, only to see stocks nosedive over the next year.

Stock investing works best when the investor has a lot of time to ride out market volatility. As a person nears retirement, that volatility becomes a bigger issue.

With that in mind, here are 10 tips to help boomers lower their levels of risk. Remember, none of the following tips should be considered investment advice. Instead, sit down with a good financial advisor and discuss your financial needs.

1. Hold Bonds in Proportion to Your Age

According to a recent Fidelity Investments analysis, many baby boomers are holding too much stock in their 401(k)s:

Source: Fidelity Investments & CNN Money asset allocation calculator

The old saw has always stated that investors should hold bonds roughly in proportion to their age. So people who are 25 should hold 25 percent of their portfolio in bonds. By contrast, investors who are 75 should hold 75 percent of their portfolio in bonds.

This is just a rough rule of thumb, but it is a useful axiom to guide investors toward stable and safe assets as they age and cannot afford greater risks in their investments. That rule is harder to follow these days because bond yields are lower, which means your nest egg throws off lower levels of funding.

However, there are ways to deal with that issue, such as holding variable-rate bonds and using senior loan exchanged-traded funds (ETFs) as a substitute for bonds.

2. Look at Your Home as an Investment

For a lot of people, a home is their biggest single investment. And a house that was appropriate for a family of three kids and two adults may not make as much sense once the kids have moved out.

That does not mean all boomers need to run out and sell their houses, but it’s worth having an honest conversation with your financial planner to see if you need all that space. Selling the home and investing some of the proceeds might be a smart retirement strategy.

3. Capitalize on ETFs

ETFs are investment vehicles that hold baskets of stocks similar to mutual funds. Unlike mutual funds though, ETFs trade on stock exchanges. They are usually passive investment vehicles, which means that no one is there actively trying to “pick” stocks. As a result, costs are frequently lower than with conventional mutual funds.

Low costs can add up to better returns over time. There are thousands of ETFs out there, and so some research is required. But ETFs are definitely worth considering.

4. Do Not Take on Risks You Cannot Handle

Today, yields on bonds, savings accounts and many other investments are very low. As a result, a lot of investors need more money than previously anticipated to achieve a given level of income.

Instead of working and saving a little longer, or accepting a lower level of income, many investors turn to high-yielding investments that also carry big risks. Investors need to understand the risks they are taking on, and make sure they are comfortable with them.

Bonds that are not investment grade are much more likely to default than investment-grade bonds. Sure, the former potentially offer a higher return, but that comes with the risk of a big principal loss. Investors need to make sure they can handle that level of uncertainty.

5. Exercise Caution With Annuities

There are many types of annuities, but unfortunately most investors know very little about these products and simply jump on them as soon as they hear a promise of a guaranteed income.

That guaranteed income can come with a lot of caveats, including the risk that in the future, better opportunities will come along and the investor will be stuck with a low-yielding annuity. Investors need to understand the risks surrounding annuities very well before investing.

6. Dump TIPS in Favor of a Ladder of Maturities

Treasury inflation-protected securities (TIPS) are designed to pay a variable yield that increases along with inflation. But inflation has not hit boomers the way many thought it would. TIPS do not yield much right now because inflation is so low. Despite the hype that sometimes appears in the media, inflation does not look like it will increase anytime soon.

With that in mind, investors should consider skipping TIPS in favor of a sequence of bonds that matures slowly over time. Consider buying a combination of short-term, medium-term and longer-term bonds to protect against various risks.

7. Diversify If You Are Going to Invest in Stocks

It is tempting for investors to look at stocks like Apple and Amazon, which have had huge runs over the last decade, and just decide to park all of their nest egg in a few high-flyers. But that is a mistake. No one knows which stocks will be tomorrow’s big winners, and which will be the big losers.

Diversification is the best way to hedge the risk in individual stocks and ensure that your nest egg remains safe regardless of what happens to individual stocks.

8. Look for Stocks With Stable Dividends

The nice thing about stocks is that the investor can earn returns in two ways – either from capital gains or from dividends. You do not reap capital gains until you sell the stock, while dividends just keep rolling in.

Sage investors know that if they do a little research, they can find stocks from companies that pay high dividends, and that can afford to keep paying those dividends regardless of what happens to the broader economy. Those companies merit a premium and are often good investments for retiring boomers.

9. Prepare Your Bond Portfolio for Higher Rates

The Federal Reserve appears poised to begin a long, slow cycle of interest rate increases sometime in the next six months. When that occurs, bonds will fall in value.

Of course, outstanding bonds will pay the same amount in interest before and after a rate increase. However, after a rate increase, those outstanding bonds will command a lower price. As a result, investors will find that the value of the bonds in their portfolio drops as rates rise.

To help compensate for that fact, investors can add stocks such as financials that should rise as the Fed raises rates. Or, they can look for lower-duration bonds, including those with a shorter maturity. Such bonds will suffer less from an interest-rate-increase.

Regardless of the strategy investors pursue, they need to make sure they are prepared to weather Fed rate hikes in a way that will not damage the investor’s long-term financial security.

10. Do Not Worry About the Highs and Lows of Your Portfolio

Most investors trade far too often. Investors get wrapped up in the day-to-day movements of the market and let it affect their psychology. That’s particularly true for retirees who may have less to do, and thus enough extra time to follow the markets.

Markets are volatile, and it’s easy to get wrapped up in the daily movements and forget about the big picture. A retirement portfolio with a $1 million principal could easily move 1 percent in a given day. That might mean a loss or gain of $10,000 for just that single day. For most people, $10,000 is a huge amount.

As a result, investors can become consumed by the movements in their portfolio and even start making trades based on those movements. That is a bad idea. Investors should invest for the long term and avoid worrying about day-to-day price fluctuations. After all, isn’t the “long haul” what retirement is supposed to be about?

This article was originally published on


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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