Baby Boomers Stock Portfolio Tips

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Your selection of stock investments should, of course, always be built around the economically competitive and financially viable fundamentals of the company you’re buying. Within that broader context, however, is the more specific topic of how Baby Boomers can invest their money to help ensure the growth of a retirement nest egg. People in that age demographic no longer have as much time to let stocks work on their behalf to grow wealth. Meanwhile, it is also unwise to buy a portfolio heavily weighted in higher-risk growth stocks. Exposure to those could potentially wipe out your chance at a secure retirement if they don’t pan out and lose value. You need to strike a prudent balance and always have plenty of cash liquidity in case of an emergency.

Tips for Factoring in Your Age

  • A very handy and reliable rule of thumb to apply to figure out how to structure your portfolio is to subtract your age from 100. Convert the number you get to a percentage, and don’t put more than that percentage of your money into stocks at any one time. If you are 30 years old, for example, 70% exposure to stocks should be your maximum. Those who are age 55, on the other hand, should limit their stock market portfolio to 45% or less.
  • Shifting from the psychology of spending to one of saving is also critical to successful retirement investment planning. To guide your savings plan though, you first have to know how much savings you really need in order to retire, which can leave many Baby Boomers scratching their heads. Many experts suggest you shoot for around 75% of your pre-retirement income. A couple that is earning $100,000 a year now, for instance, will probably be quite comfortable and secure with a combined retirement income of $75,000 a year.

Other Ways to Boost Retirement Stock Holdings

Take advantage of programs your employer may offer as part of a 401(K) plan and explore opportunities presented by investment in life insurance products that may be a suitable savings option, based on the cost of premiums, the potential payout, and your age. A variable annuity insurance policy, for example, allows you the benefit of life insurance combined with the flexibility to invest your cash balance in stocks and bonds to enhance your returns.

If you own a residence that is paid off or if you have a lot of equity and a very low balance left on your mortgage, a reverse loan may be a convenient way to free up extra cash without having to sell your home. Baby Boomers may also want to do that in order to diversify their assets, so instead of having a nest egg heavily weighted in real estate, they have a more balanced strategy that gives them a cash payout every month. Then, if it’s appropriate, they can divert some of that monthly reverse mortgage income into holdings, like bond funds, that purchase United States Treasuries.

Insurance products as well as professionally managed stock or bond funds often come with high fees, however, that can dilute your gains. The reverse mortgage is also a notoriously complex product that is wonderful for some people and a terrible idea for others, depending on their individual financial circumstances. That’s why it is important to study the terms and fee structures carefully and review your options with a qualified and trusted financial advisor.

Preserving Diversification

You also have to be vigilant about asset diversification so all your eggs aren’t in one basket. Many seniors are careful about that until it comes to allocating stocks or bonds as gifts to loved ones, and then they inadvertently overlook the consequences. Americans often give stocks to loved ones instead of putting those financial assets into their Last Will and Testament, for instance, as part of a smart estate planning strategy. The reason for this approach is that if you transfer wealth in this way while you are still alive, you may avoid expensive estate taxes and completely circumvent the legal complications and delays of probate.

One method to insure you don’t compromise diversification is to take an equal dollar amount from each bundle of shares in your portfolio. If you have 10% of your stock portfolio spread across 10 different sectors or industries, for example, you can skim an equal percentage of value from each sector without disrupting your diversity. Don’t make the mistake of skimming an equal number of shares from each category, however, since the actual dollar value of shares from one company to the next will not be the same.

Converting Retirement Portfolios into Spendable Cash

You can use the very same approach (above) whenever you need to raise some cash by selling stocks, but be careful to also take potential tax liability into consideration. Since you have to pay taxes on your profits, it may be wise to avoid selling the stocks in your portfolio that have the lowest cost basis, since those also carry the highest tax liability. An even better idea is to sell stocks that you’ve lost money on because you may be able to use those losses to offset your taxable income. Just be sure that you held the stocks long enough for them to qualify as long-term losses, since those are the only ones you can deduct.

You should not, however, apply any of these concepts without first consulting both a financial planner and a tax expert. Everyone’s individual financial circumstances and needs are different, and that is an overriding rule of wealth allocation. While all sorts of strategies can give you ideas and stimulate your thinking about wealth management, you should only act on those that are appropriate to your particular situation.

Tom Kerr writes for CompareCards.com in addition to others. He has been an avid writer for years, even winning awards for work he’s done.

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One thought on “Baby Boomers Stock Portfolio Tips

  1. John@MoneyPrinciple

    Stock investments are all the rage but you need to diversify. Typically hold 12 stocks so that if one goes south, you haven’t lost everything. Funnily enough adding 12 uniform random numbers together and subtracting 6 is a crude way of generating a normally distributed random number!

    Baby boomers don’t have the time that younger folk have but I would still be careful about retirement wrappers. Over here we have SIPSS – Self Investment Pension Plans – but these lock funds in and it can be annoying to know that you could do with the money today – maybe for some emergency.

    The other thing to look at is contracts for difference which can enable you to build substantial funds quite quickly although it is also of course possible to lose a lot of money!

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