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Building a better nest egg
By Jodi Schneider
Having enough to retire
on is about more than just stocks
When the high-tech and dot-com hot air whooshed out of the
overheated stock market a few years back, the hopes of would-be
retirees also went flat. The market's comeback undid some of the
damage, but many nest eggs still show cracks. Is it possible to get
back on track relatively quickly? Or should people swallow their
disappointment and scale back their retirement plans?
Probably some of both, say experts. Those on the cusp of retirement
and short of their goal need to determine their shortfall and decide
how much of it can be made up within a few years with acceptable
risk. Even with an improved market this past year, goals and
expectations might have to change: when to retire, whether to move,
whether to keep working part time in retirement.
"It's a mistake to think that the only way to save for retirement or
to catch up on savings for retirement is by investing," advises
retirement columnist Ellen Hoffman, author of The Retirement
Catch-Up Guide. "It's important for people to take a broad view of
their entire personal financial situation."
That broad view encompasses three major categories of resources.
There are your investments--stocks, bonds, and other market assets.
There's your home, which usually goes untapped as a source of
income. And there's your ability to work full or part time if
necessary in order to repair the broken egg.
Your investments
Many retirees and soon-to-be retirees who lost significant sums in
the market a few years ago itched to jump back in with both feet
when the slide reversed. Bad mistake. "People have a tendency to do
what got them into trouble in the past, even if it was painful,"
says Mark Gleason, a senior financial adviser with money managers
Wescap Management Group in Burbank, Calif. But you don't want to
turn gun-shy, either, loading up with bonds and other tortoiselike
products. "When a market recovers, investors need to be fully
invested at that point," says certified financial planner Phil Cook,
whose firm, Cook & Associates in Torrance, Calif., has many retiree
clients. "That's when you get your greatest appreciation."
So what to do? Pick a decent stock market return, says Gleason--the
historical average is about 10 percent a year--and strive to achieve
it, allowing for your own comfort level and avoiding past trouble
spots. "Diversify, diversify, diversify" is a mantra not only
overall but also within your stock basket, to raise returns and cut
risk.
Scandal-scarred though they are, mutual funds remain the best way
for most small investors to retain a diversified portfolio. Funds
are rare that consistently outperform the market, have good growth
potential and relatively low volatility, and welcome new investors
with low initial minimums. One of Cook's choices is American
Funds'Growth Fund of America, a conservative fund of large growth
stocks with a minimum initial investment of only $250, and low
operating expenses. Gleason, noting the possibility of further
weakening of the dollar, suggests Morgan Stanley International
SmallCap Fund, which invests in small foreign stocks and has a
$1,000 minimum.
Source:
US NEWS
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