Do Retirement and Investing Posts from 2015 Still Ring True?
By some estimates, about 10,000 baby boomers are retiring each day – a number that will likely hold for another 16 or 17 years. That’s a lot of people entering an important new phase of their lives! Of course, here at Russell Investments we think a lot about retirement and how people can have a wealthier, happier retirement. Several of our experts have excellent blogs posts in 2015 that offer some keen insights for both retirees and their financial advisors.
In August, for instance, Managing Director for Investment Management Brian Meath challenged whether chasing yield was the right strategy for investors. Sure, it sounds appealing with returns on money market accounts and U.S. Treasuries historically low in recent years. But as he points out, we’re entering a volatile phase as U.S. and European central banks diverge on the direction of interest rates and use of quantitative easing. That can put higher-yield investments at risk. And as he notes, during the financial crisis, the worst 12-month return for some high-yield bond classes in the last 20 years was minus 31.2%!1 In light of that, he advocates considering a responsible-yield portfolio that balances income against long-term growth; mixes strategies and assets; takes an investor’s tolerance for risk into account; and adapts to changing market conditions.
Of course, nobody likes paying taxes. But they’re inevitable, so in October Director of Consulting Services Frank Pape discussed ways to help reduce capital gains on investments for U.S. investors. The key take-away in his piece: Consider making tax management part of an investment strategy. That means more than just buying municipal bonds and forgetting about them. After all, even “tax-free” muni bonds may have tax-eligible gains. Pape discusses a strategy that involves holding assets longer to potentially help reduce tax bills; finding funds that are actively tax-managed; and using losses tactically to help offset taxes on gains. Even better, this approach can be a win for investors and for their advisors.
For U.S. financial advisors, having a conversation with clients about Social Security is a wise thing to consider as Director of Learning and Development Scottland Jacobson wrote in November. He notes that the Bipartisan Budget Act of 2015 – signed into law Nov. 2, 2015 – discontinued the popular “File and Suspend” and “Restricted Application” claiming strategies that allowed married couples to continue to grow one spouse’s Social Security benefit while the other claimed a spousal benefit. With that in mind, advisors might want to talk with clients about the various Social Security options still in play. When to claim Social Security is one key decision, for instance. And then there is the fact that Social Security still offers a range of spouse and widow/widower benefits that even some advisors don’t know about.
Managing investments leading into and throughout retirement can seem like a daunting task. But there are real, actionable strategies out there. It’s what we here at Russell Investments spend much of our time thinking about.
1 U.S High Yield: Barclays U.S. High Yield Index as of March 2015.
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Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
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Bonds involve risks such as interest rate, credit, default and duration risks. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent in portfolios that invest in high yield (“junk”) bonds or mortgage-backed securities. Investments in derivatives may cause the investors losses to be greater than if he/she invests only in conventional securities and can cause the returns to be more volatile.
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Barclays U.S. Corporate High Yield Index: The Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. The US Corporate High Yield Index is a component of the US Universal and Global High Yield Indices. The index was created in 1986, with history backfilled to July 1, 1983.
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