By Jill Nagy
After years of saving for retirement, eventually,
the day comes and with it, the need
to switch gears on savings and investment
strategies.
Traditionally, the advice has been to
begin to switch from growth investments,
like stocks, to more conservative income producing
investments. However, the current
economy poses special challenges, say
financial advisers.
“The emphasis is on trying to find yield
in a low-yielding world” said Steve Hipsley
of Champaign Wealth Management of
Saratoga Springs. The old standby, bank
certificates of deposit, are paying “close to
zero percent interest,” he noted.
People have to earn 3 to 5 percent on their money to keep up with inflation, he pointed out. “Safe is a relative term,” he said, “If your money doesn’t keep up with inflation, that’s not safe.”
Some types of corporate bonds or international bonds could provide the required balance between safety and yield, said Hipsley. He also suggests high-yield blue chip stocks, such as shares in some utility companies, and participation in master limited partnerships, such as pipeline companies, that may yield a 5 to 7 percent return.
“We have had many discussions with our clients,” said Maureen Walsh, an investment advisor at Canty Financial Management in Ballston Spa. They want stability, something more conservative than stocks, combined with a decent return on their investment.
Meanwhile, she said the stock market is “soaring.”
“The current investment environment presents unique challenges for those nearing retirement as well as those who are already retired,” she said. “Retirees typically have a higher component of bond holdings in their portfolios.”
She said in June “bond returns suffered a jolt when Federal Reserve Chairman Ben Bernancke announced that Fed policies would taper its qualitative easing as signs in the economy emerged: suddenly bonds became less stable. Reduced bond stability flies in the face of ‘safe and stable returns’ that bond investors have been comfortable with in recent years. Traditionally, bond holdings have played a major role in the portfolios of retirees, offering lower risk and modest but sustained returns.” Walsh sees “potentially higher interest rates on the horizon,” which would reduce the value of bonds purchased at today’s depressed rates.
“The two main risks for bond investors,” she said, “are interest rate risk and credit risk. The potential for higher interest rates typically causes volatility in the bond markets, so for investors who want to remain in bonds, a move to shorter-term, high-quality bonds is advisable. In an environment that has potentially higher interest rates on the horizon, bond investing should be closely monitored.” She said the current low interest rates are partly the result of intervention in the market by the Federal Reserve Bank.
“While less Fed intervention is better for markets in the long term, it seems unlikely that the Fed will upend the economy with drastic measures just as it is showing positive signs: in real estate sales, increased bank lending, and somewhat lower unemployment numbers,” she said.
Walshsaid investors who have more conservative portfolios with bond holdings “should consult with their investment advisors to assure that their asset allocations represent a diversified portfolio, including a bond allocation that is mindful of current market conditions.”
Hipsley said that this is not a time to try to invest without expert guidance. Hipsley’s office is at Reinhart & Associates on West Avenue in Saratoga Springs.
His number is 306-4138. Walsh’s office is at 20 Church Ave. in Ballston Spa. Her telephone number is 885-3230.