Page 14 - Kiplinger's Personal Finance - November 2018

INVESTING

EQUITY (SWHEX), launched in 2002, fol- category, according to Morningstar. on the other side of the trades. GLEN-
lows a long/short strategy of buying Options-focused funds seek to profit MEDE SECURED OPTIONS (GTSOX) has gained
attractive stocks for gains while also in part by collecting premiums on 7.1% a year over the past five years, on
selling unattractive stocks short (sell- stock “put” and “call” option con- average, and has beaten its average
ing borrowed shares with the expecta- tracts. A put is the right to sell a stock peer fund over the past one, three and
tion of replacing them at lower prices). at a preset price by a future date. A call five years, with a five-year average
Over the past 10 years, the fund has is the right to buy a stock at a preset volatility , or beta, that is less than half
gained 6.2% annualized, compared price by a future date. Investors pay that of the stock market overall.
with 4.7% for the average fund in its premiums for those rights to investors SEND QUESTIONS OR COMMENTS TO FEEDBACK@KIPLINGER.COM.

Stress Relief
CUT YOUR INVESTING RISK AT EVERY AGE

Nobody likes to pay for insurance. But we do it to protect ourselves who feels the need to be more defensive, “we might dial the whole
from unforeseen disaster. Likewise, reducing risk in your portfolio after portfolio down” to the next rung, she says.
a long bull market in stocks can ensure you’ll keep more of the gains Setting stop-loss sell orders on stocks in your brokerage account
you’ve racked up, while giving you more confidence to stay calm when can limit losses in a market downturn. Such orders trigger a sale once
the next bear market arrives. Here’s a look at financial de-risking strat- a stock falls to a price that you preset. Or consider put options, which
egies for three age cohorts: grant the owner the right to sell a stock or an exchange-traded fund
at a preset price to another investor, up until the option expires.
TWENTIES, THIRTIES, EARLY FORTIES. Advisers say couples in this age group should make sure they’re on
You have little reason to cut investment the same page when it comes to investment risk-taking. CFP Robert
risk by selling stocks. You have decades Wander, of Wander Financial Services, says it’s natural that “one
until retirement, which means decades spouse will have a different risk tolerance than the other.” But both
to recover from temporary market losses. should agree on financial goals and the plan to reach them.
The exception might be younger people
who expect to tap their nest egg for a EARLY SIXTIES AND OLDER. If you are in
major outlay, such as a house. Whatever this age group, capital preservation and
your goal, the only safe place for money income generation (from bond interest or
needed in a few years is a cash account. stock dividends) become increasingly para-
Young investors may have better ways to cut risk than by trimming mount because retirement is in view and
stocks. Reducing debt is one; reining in spending to boost savings is you’ll eventually need to make regular
another. And for forty-somethings, hiring a fee-only adviser to do a full withdrawals of assets to pay living costs.
review of your finances might be an insurance policy well worth the cost. You’ll need to consider how much income
you’ll have from Social Security and pen-
LATE FORTIES, FIFTIES, EARLY SIXTIES. sions, how much you can reasonably withdraw from investments each
These should be your peak earning years year, and the most tax-savvy sequence of withdrawals from retirement
and also your peak investing years. But accounts versus taxable accounts.
the more assets you accumulate, the Given the potential to live beyond 90, you’ll still need some growth
more fearful you may become about stocks to provide long-term appreciation. But for retirees, it’s also im-
losing a large chunk of what you’ve saved portant to build up a year or two of living expenses in cash accounts
if markets slump. Depending on your risk (see “Make Your Money Last,” Oct.). The idea is to avoid having to sell
tolerance, that may call for a gradual re- stocks at a low if a bear market hits, depleting more of your nest egg
duction of high-risk assets, such as stocks. than you otherwise would and leaving less to grow over time. With
Laura Tarbox, a certified financial planner who heads up Tarbox the cash cushion, you can ride out a bear market until stocks begin to
Family Office, models most clients’ portfolios on one of four basic recover. Considering how strong the stock market has been, if you’re
asset mixes. Foreign and U.S. stocks account for more than 80% of already expecting to trim stocks in 2019 to fund living expenses, “con-
assets in her aggressive-growth portfolio, then dwindle to 64%, 48% sider peeling some off now,” says Christine Benz, personal finance ISTOCKPHOTO.COM (3)
and finally, to 30% of assets in the most conservative mix. The rest of director at Morningstar. “By doing so, you’re reducing portfolio risk,
the assets are in bonds, cash and alternative investments. For a client raising needed cash and rebalancing to a better comfort level.”

58 KIPLINGER’S PERSONAL FINANCE 11/2018

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