Many baby boomers suffered severe losses in their portfolio of retirement investments. Now we want to know the best ways for recovering from those losses. These are a few strategies that have come to my attention. Some are conventional and passive. Others will take some work. All are worth considering.
2. Increase Investment Diversity. Some of us are over-weighted in certain investment sectors and/or ignore other sectors altogether. For example, do you have some of your money in real estate investments (e.g., REIT funds) or in commodities? If not, consider how adding new asset categories may help you recover without adding more risk.
3. Re-balance Your Portfolio. Even if you are confident that you are properly allocated in a package of diverse investment categories, have you checked to insure that the dollar amounts you have in those different asset classes are balanced properly? A solid recovery could depend on it. Asset classes that have declined the most may be those in which you stand to now gain the most. Make sure you have enough money in those assets to take advantage.
4. Lower Your Investment Costs. You may own mutual funds that had low management fees relative to others when you bought them. But times have changed. Newer funds may be less expensive to own. Or, an equivalent ETF may now be available that is less costly. Be sure to check. You may also find that low cost investments provide better performance.
5. Improve Tax Efficiency. Recovering from portfolio losses means avoiding or delaying taxes if possible. Make sure that the investments you own are properly distributed between taxable and non-taxable accounts. For example, owning Treasury Inflation Protected Securities (TIPS) may be part of your plan, but those make the most tax-sense if owned in your 401(k) or IRA. One of the most effective tax-free strategies is using your Health Savings Account (HSA) for retirement investing.
6. Replace Asset Value with Income. Sometimes the quickest way to replace a loss in the value of retirement assets is with other retirement income. For example, I have been busy trying to develop sources of passive or semi-passive income that can be exploited through our retirement years. Look at this way – if you can develop an alternative income source of $1000/month, that’s the equivalent of having an extra $250,000 – $300,000 in retirement assets, assuming a 4% withdrawal rate. At the very least, you can use income from credit card rewards to boost your IRA account.
7. Downsize and Sell Stuff. Downsizing from a home that is larger than you need can free up cash for investing. So can selling all of that extra stuff that you own. Better to do it now than wait while prices drop. Put that money to work in your portfolio.
Note that I have not suggested adding more risk to your portfolio. Most experts recommend against that strategy because it could compound your losses at the very worst time.
Those are some of my thoughts – what are yours?
Photo credit: Miki