Based on historical trends of the Dow Jones Industrial Average going back to the late 1800s, our current volatile market could continue another 7-8 years. Once you have laid the foundation of safer money assets in your portfolio, how do you build the growth portion of your assets as you move toward retirement?
Historically, nothing outperforms stocks and mutual funds. They must be a part of retirement portfolios to keep up with inflation, but we need to approach them differently than we have in the past. Some investments with better growth potential include: ETFs (exchange traded funds), stocks, mutual funds, options, and REITS (real estate investment trusts). Let’s look at two:
- ETFs are funds that trade like stocks on an exchange and they track an index or industry. They have lower fees than mutual funds, more fee/transaction transparency, and you control the buy/sell for greater tax efficiencies of gains/losses.
- Stocks- Any stock we buy should have “great grades”-an Earnings Strength (EPS = its earnings have been stronger than many other companies), and a Relative Strength (RS= its price strength must be stronger than other companies). We look for stocks with solid “grades” and buy them as they break out.
“Buy and hold” strategies don’t work well in today’s fast-paced world and volatile markets. Fundamental analyses of stock grades and market direction (75% of all stocks follow the market) along with technical analyses of patterns, price and volume trends, and moving averages are the essentials.
- What You Need to Do:
- Look for new and emerging stocks with solid growth potential
- Actively manage and carefully monitor investments to improve returns
- Take gains, cut losses and choose buy and sell points
- Use both fundamental and technical analysis
My best advice: Growth assets are mandatory for beating inflation and maintaining purchasing power. Examine the growth portion of your portfolio with your financial advisor and based on your age and circumstances, make the changes that are best for your financial future.
Cynthia K. Fick is founder of Financial Life Planners LLC in Ahwatukee.
This article was published in Arizona Republic Ahwatukee.