The importance of stocks in
retirement investing.

Stocks are important when investing for retirement ... and
for investing during retirement.

Financial experts are increasingly saying that investors need more stocks in their portfolios--both when investing for retirement and during retirement.

We agree, but with a caveat -- investing in stocks can be risky. That's why our Model Portfolio strategies are designed to help you maximize your portfolio's allocation in stocks ... but safely ... with strong risk management controls so you can avoid bear markets.

Let’s focus first on the importance of investing for retirement.

Studies show that stocks can be key to increasing long-term investment returns.

Academics and financial researchers have studied the question in countless ways. Most come to the same conclusion:

• Looking historically at 10 or 20-year cycles, stocks have usually been the investment to own.

Over very long periods of time, the annual return on stocks is about double the investing return on bonds. Because of the power of compounding, even small increases in your average annual return become magnified over time, resulting in much larger, absolute increases in your retirement investment portfolio.

It follows logically that investing heavily in the stock market will be important if you want to significantly increase the size of your retirement nest egg or enable an earlier retirement. This is true if you have the means of controlling the added risks of owning stocks in your retirement portfolio.

Our lengthening life spans After Retirement may require investing for higher rates of return During Retirement.

We are living longer. Therefore our financial resources are spread thinner and become even more vulnerable to long-term threats such as inflation. Because of this, investment advisors are increasingly recommending a higher asset allocation in stocks particularly in the early years after retirement.

It makes sense to a degree. Stocks can be a decent hedge against moderate levels of inflation, particularly when compared to bonds. And to stretch your nest egg as you age, higher investing returns become critical to the equation. But again, the main caution is whether you have the ability to control the extra risk of stock market investing in your retirement portfolio.

The problem ... stocks increase risk.

The advice to rely more on stocks creates a dilemma for investors seeking a better retirement. We have recently witnessed just how much money you can lose in the stock market.

• Stocks can be extremely volatile in the short run, even while they have proved to be a superior investment in the long run ... the much longer run, such as in 20 to 40 years!

Retirement investing theory is one thing. But it can be very tough for investors to deal with high volatility ... particularly when it involves their money for retirement. And because of the human emotional element, investors tend to react to volatility in self-defeating ways.

Studies show that the investing public waits too long to protect their stock market profits after a bull market ends and tend to sell near the bottom of a bear market. And then ... because of the emotional impact of the losses, investors wait too long to get back in and tend to miss much of the benefit of the next bull market.

• The investing discipline you need for retirement investing is very difficult in the face of stock market volatility.

The traditional answer given for managing this dilemma has been to use asset allocation schemes that reduce your portfolio's allocation in stocks. This approach successfully reduces volatility but at the high price of reducing the average portfolio investing return. So, how can you increase your allocation in stocks but do it safely so you avoid the extra volatility?

“Tactical” asset allocation is the investment technique you need.

To access the higher investing returns available in the stock market without increasing volatility, you need an active approach to portfolio management that tactically and dynamically responds to changing trends. See our expanded discussion in Dynamic and Tactical Asset Allocation.

• The advanced market timing technology driving our investment models allows you to hold a higher allocation of stocks when the stock market is strong.

But portfolio volatility is minimized since the computer models are good at determining when to get out of the market.

So now, when you are investing for retirement ... or investing during retirement ... you really can benefit from a higher stock market allocation safely. Take a close look at the discussion and statistics in What Are Your Risk-Adjusted Returns? Compare the risk statistics for our strategies with your own risk tolerance. We think you will find that some of our Model Portfolio strategies can fit into your investing needs, even if you are nearing retirement or in the early phases of retirement.

But, remember that you should consult with a licensed financial professional before pursuing any strategy. It is your responsibility to determine the suitability of any generic strategy for your individual situation. To assist you and your investment advisor on determining suitability, the page Which Strategy is Best for Me? provides information about each of our Model Portfolio strategies.

Also, take out a Trial Subscription to one of our newsletters as a low cost way to become more familier with the strategies.