28 Jun

Try the Bucket Approach

Constructing a portfolio this way may help you ride through a bear market in retirement.
Provided by Jeffrey C. Hamm

Stocks sometimes retreat. That reality can be overlooked in a long bull market. Bear markets do appear, and a deep downturn could force you to sell securities in retirement, so you can pay for necessary expenses.

Right now, you might have too much money in stocks. Years of steady gains may have unbalanced your portfolio and heightened your risk exposure. If you are 60 or older, that constitutes a warning sign, especially given this bull market’s age. What would a downturn do to your retirement fund and your retirement income?

If you are wondering how to respond to this risk, consider the bucket approach to retirement income planning.

The bucket approach may help you through different market cycles in retirement. This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.”1,2

The simplest version involves just two buckets. One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighted asset class) lets you increase the size of your cash bucket.1,2

Other versions of the bucket approach have longer time horizons. In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income.

In glimpsing the details of the bucket approach, you can also see the big picture. Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of your retirement fund).

Is the bucket approach foolproof? No, but no investing strategy is. In the worst-case scenario, you drain 100% of the cash bucket(s) and end up with an all-equities portfolio. That is hardly what you want in retirement. Bucket allocations must be carefully calculated, and periodic bucket rebalancing is also needed.

The bucket approach may have both financial and psychological merits. Most retirees use the 4% rule (or something close) when withdrawing income: they take distributions from various accounts and asset classes, perhaps with little regard for tax efficiency. If Wall Street stumbles and their portfolios shrink, they may panic and make moves they will later regret – such as selling low, abandoning stocks or even running toward alternative investments in desperation.

When you use a bucket approach, you first turn to cash and/ or liquid securities for retirement income rather than equities. Psychologically, you know that if a bear market arrives early in your retirement, your equity holdings will have some time to recover. This knowledge is reassuring, and it may dissuade you from impulsive financial decisions.

Ask about the bucket approach today. It could be a great financial strategy to adopt for your retirement.

Jeff Hamm may be reached at 228-474-3427.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

Citations.
1 – seattletimes.com/business/about-to-retire-heres-how-to-cope-with-stock-market-shocks/ [11/25/17]
2 – news.morningstar.com/articlenet/article.aspx?id=839521 [12/13/17]

01 Jul

6 Reasons to Stop Procrastinating and Start Investing

Is anxiety about losing money in a market downturn keeping you from investing? Or maybe you’re waiting for the “right” time to invest — like when you have some extra money. Before you put off investing any longer, consider these six reasons you should invest.

1. Losing money when the markets drop is not the biggest threat to your finances. If you don’t have a substantial nest egg by the time you retire, you run the risk of outliving your money. Inflation poses a long-term threat, too — if your money doesn’t grow to outpace inflation, your buying power falls. It’s far less risky to invest in a well-balanced portfolio than to not invest at all.

2. Your odds of winning the lottery, launching a billion-dollar company or becoming a rock star are slim. As in Aesop’s fable, “The Tortoise and the Hare,” slow and steady wins the race. Building wealth a little at a time over many years may not be as sexy as a sudden windfall or wild success, but it’s a lot more certain. It allows you to control your destiny.

3. You can find a mix of investments that fits your goals, timeline and risk tolerance with the enormous universe of investments available to you. The way you blend investments — your asset allocation — determines the overall level of risk in your portfolio. You can allocate some money to riskier investments with greater potential for growth and some to more conservative investments with less potential for gains, but also less potential for losses.

4. A disciplined approach can help you manage risk — and even use downturns to your advantage. Two strategies can take the emotion out of investing and help keep your portfolio on track toward your goals:

  • Dollar-cost averaging involves investing a set amount at regular intervals, no matter what the market is doing. The result is that you buy more shares when prices are down and fewer shares when prices are up.*
  • Rebalancing means restoring the stock, bond and cash mix in your portfolio to your original target allocations for those asset classes. Over time, as one asset class outperforms the others, your asset allocations will drift away from your targets. To rebalance, you can sell assets from classes that are outperforming the others, buy more of asset classes that are underperforming, or some combination of the two. If your portfolio is not in a tax-sheltered account, be sure to consider the tax consequences of rebalancing.

5. Tax-advantaged accounts can help your money grow faster. To help you save for retirement and college, certain types of accounts come with built-in tax advantages. Accounts that help you save include individual retirement accounts (IRAs); employersponsored retirement accounts such as 401(k), 403(b) and 457 plans; Coverdell education savings accounts; and 529 plans.

6. You’ll find the help you need right here.An investment professional from Navigator Credit Union can answer your questions and help you get started. Call for an appointment today at 228-474-3427!

Dollar-cost averaging (systematic investing) cannot guarantee a profit or protect against loss in a declining market. You should consider your ability to continue investing during periods of low price levels.

Investment products:
Not federally insured
Not a deposit of this institution
May lose value

16 Apr

Diversification, Patience & ConsistencyThree important factors when it comes to your financial life.

Provided by Jeffrey C. Hamm

Regardless of how the markets may perform, consider making the following part of your investment philosophy:

Diversification.

The saying “don’t put all your eggs in one basket” has real value when it comes to investing. In a bear OR bull market, certain asset classes may perform better than others if your assets are mostly held in one kind of investment (say, mostly in mutual funds, or mostly in CDs or money market accounts), you could be hit hard by stock market losses, or alternately lose out on potential gains that other kinds of investments may be experiencing. So there is an opportunity cost as well as risk.

This is why asset allocation strategies are used in portfolio management. A financial professional can ask you about your goals, tolerance for risk, and assign percentages of your assets to different classes of investments. This diversification is designed to suit your preferred investment style and your objectives.

Patience.

Impatient investors obsess on the day-to-day doings of the stock market. Have you ever heard of “stock picking” or “market timing”? How about “day trading”? These are all attempts to exploit short-term fluctuations in value. These investing methods might seem fun and exciting if you like to micromanage, but they could add stress and anxiety to your life, and they may be a poor alternative to a long-range investment strategy built around your life goals.

Consistency.

Most people invest a little at a time, within their budget, and with regularity. They invest $50 or $100 or more per month in their 401(k) and similar investments through payroll deduction or automatic withdrawal. In essence, they are investing on “autopilot” to help themselves build wealth for retirement and for long-range goals. Investing regularly (and earlier in life) helps you to take advantage of the power of compounding as well.

If you don’t have a long-range investment strategy, talk to a qualified financial advisor today.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

09 Apr

Hey Baby Boomers! We’re Here for You

At Navigator Credit Union, we make it our mission to serve your financial needs at every age and stage of life. If you belong to the baby boom generation (those born from 1946 to 1964), then you’re in good company.

While every credit union’s membership is different, research suggests that more than 40% of credit union members are baby boomers.* It’s fitting that many baby boomers have made credit unions their financial home, because this generation has a history of seeking alternatives to traditional ideas and institutions (such as big banking).

Credit union membership is appealing and empowering, because credit unions work for people – not for profits – and members have a say in how the credit union is run.

Financial Solutions Off the Beaten Path

Baby boomers’ financial plans may include borrowing, saving and investing – but not necessarily in that order. They may manage multiple goals with creative and unconventional financial planning, from saving for retirement and paying for college tuition to refinancing a mortgage or taking a new career path. Navigator is tuned in to your unique goals, and we’re ready with a lineup of products and services that are flexible to fit your needs.

Loans from credit unions – for your lifestyle. We offer competitive rates on home mortgages, auto loans, home equity loans and personal loans to help you get where you need to be. Our refinancing options can help you pay off a first or second home or vehicle faster, and/or lower your monthly payments so you can focus on other financial goals.

Best savings plan – for the unexpected. Our savings accounts, certificates of deposit (CDs) and money market accounts help keep your emergency funds afloat. Building up emergency savings is particularly important if you juggle multiple responsibilities – perhaps caring for aging parents or providing financial support to adult children.

Insurance – for your changing needs. Our insurance representatives can review your homeowners, auto and life insurance coverage in light of the moving pieces in your life – teenage drivers, home improvements, divorce/remarriage, empty nest, etc.

Investing – ask a financial advisor. Our financial advisors can help you plan your portfolio for a brighter future, whether that means supporting a comfortable retirement or continuing to work. And even though retirement is a top goal for many baby boomers, we understand that this generation won’t be retiring to the proverbial rocking chair anytime soon!

Banking online or at a branch. You don’t have to be 20-something to keep up with online and mobile banking services. In fact, online banking is becoming uniformly popular across all age groups, according to a survey of Internet users.** When you want the convenience of fast, friendly in-branch service or access to free ATMs, Navigator has you covered. Call 228-475-7300 to learn more about what we have to offer, or visit www.navigatorcu.org.

* Source: Credit Union Times, Dec. 1, 2010.
** Source: Pew Internet & American Life Project, Generations Online in 2010.