Seniors and retirees may be less concerned about contributing to their retirement and more interested in getting distributions from those accounts. But generally they should:
- Establish a fund of safe, liquid investments, such as certificates of deposit and money markets, to meet anticipated living expenses for the next three to five years
- Focus on investing the balance in bonds and funds with the twin goal of preserving principal while protecting purchasing power
- Review estate plans
“Their income is fixed, but their expenses are subject to inflation, and hard assets serve as a hedge against higher costs,” says Ivory J. Johnson, a certified financial planner and director of financial planning at Scarborough Capital Management (www.401kadvice.com) in Annapolis, Maryland.
In 2007, Johnson advised his client, Nancy Little, to reallocate her portfolio, which was heavily weighted with General Motors Co. stock. He talked to her about investing in bonds, commodities, and gold, a good hedge against inflation that tends to do well during economic downturns.
Little owns a commodities fund, a weakening dollar fund, a managed futures position, and gold bullion. She bought the MainStay High Yield Opportunity Fund (MYHYX), which had a three-year return of 21.35%, and a fund formerly known as the Rydex Long/Short Commodities Fund (RYLFX), which had a 3.86% return since inception in 2009. She also made Central Gold Trust (GTU) 25% of her portfolio. It rose 20.58% since 2007.
“I put about 25% of my retirement portfolio into alternative investments and they’ve done better than anything else I own,” says the 61-year-old, who lives in Farmington Hills, Michigan, and works as an auditor at Ford Motor Co. “My total portfolio return was 13% from 2008 through 2011, with no volatility. I didn’t lose anything.”