Hmmm… I guess it’s about time that someone wrote about “new” rules to investing, so why not Katy Marquardt of U.S. News & World Report? In citing the classic risks retirees face, Marquardt talked to some experts and came up with five new rules for retirement.
Separate investments into different time horizons
Rather than treat your investments as one big pot that you will draw down, they recommend that you treat it as three post – short-term funds, intermediate-term funds, and long-term investments. The short-term should be in low risk investments like high quality bonds, the intermediate-term funds should live in a 50-50 or 60-40 mix of stocks/bonds, while the long-term investments, which a time horizon of 5+ years, should be heavy on stocks. It’s an interesting idea that I think many people were already doing. If you plan to live for 20 years after retirement (into your 80s), I can’t imagine you treating the dollars you plan to spend in your 70s the same way you are treating those you will spend tomorrow.
Don’t reach too far for yield
For your safe investments, don’t try to get too good of a yield by taking on too much risk. I believe in the same mantra, you’ll want a safe return on your short term funds because the risk of something falling tremendously is simply too great. If you’re retired, you can’t afford to lose the money you will need to spend in the next five years so just keep it in a safe high yield savings account or buy a high quality bond.
Munis, dividends
Rule three and four are similar to rule two in that they talk about income generating investments. Rule two points you towards government bonds, or municipal bonds (muni), and rule three says you should look towards stocks with a dividend. One warning I’d have about stock dividends is that they are an indicator but they’re not 100% reliable, companies cut dividends all the time.
Alternatives
This one I liked the least because we start getting into “how should I invest” rather than “how should I be changing my investing plan to account for a new era.”
The five rules weren’t really five rules, it was two rules and then three investment suggestions. That being said, it’s not a bad article, just a little misleading.