The best investment advice you’ll ever receive from me

Dear Pete

I am 67 and my wife is 63. We have IRA’s that are still invested in stock mutual funds.  This is a good idea since bonds and savings accounts pay almost 0%. While stocks have good returns today,  I believe sometime soon interest rates will start to go up and stock values will go down.   Because we need income from  these IRA’s to support us for the next 20-30 years (and have something to leave to our children) we also don’t want to gamble on taking a hit when stock values start to drop.  While our son was finishing college we had his 529 account in stock mutual funds. One year the fund increased enough to pay for 2 semesters.  However, during the crash of 2008 the account dropped enough to wipe out 1 semester before we moved the funds to a FDIC insured savings account. We don’t want to be exposed to this happening again with our IRA’s. What would you recommend we do? 


I love this question Bill. I also appreciate how much detail you gave because it helps me give better advice. Except, unfortunately, I’m not going to give you any advice today. Why not? Because giving investment advice via a blog post just isn’t wise. That’s a financial advisors job. So that’s my one and only piece of advice, for this non-advice giving post, if you want investment advice, get a financial advisor. But even though I won’t be telling you specifically what to do, I’m happy to dispel some myths and give you some good solid information to help you on your quest for financial answers. 

First of all, let’s talk about gains and losses. It sounds like you are somewhat receptive to taking risks because you enjoy the gains, but much like eating junk food or staying up late, the positives come with negatives. If you want gains, you also have to be open to losses.

At 67, you probably shouldn’t have an all or nothing strategy. To be transparent, at 36, I don’t even have an all or nothing strategy. I have 10 percent of my investments allocated to different types of bonds. You gotta stop thinking of investing as stocks versus bonds, and start thinking of investing as stocks and bonds. I hastened-over to a financial website and asked it to show me one of the top bond mutual funds in the US today. It showed me the PIMCO Income fund. Let’s go ahead and get a disclaimer out of the way. I’m not recommending that you invest in this fund. I’m merely using it as an example because PIMCO, as an investment company, has been in the news recently. The fund’s main objective is to create income, while its secondary objective is capital appreciation. Capital appreciation is industry-speak for “go up.” I wish they’d just say go up. In 2012, PIMCO Income Fund was up over 21 percent, and last year it was up over 4 percent. My point is that bonds are excellent at creating income, even when the bonds are in mutual funds.” (courtesy of the Indy Star)

Creating a healthy mix of stocks and bonds is generally the best move. When you do get a financial advisor, look into Modern Portfolio Theory (MPT) which helps optimize returns based on your risk tolerance. Oh, and don’t forget how important your withdrawal rate is. I recommend withdrawing 4%. Going over this percentage will increase the likelihood of running out of funds.

Read my full Indy Star column here.

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