How to Rescue Your Retirement and Boost Your Savings in Two Simple Steps
If you think the 2022 bear market has been rough on growth stock investors, it has been even worse for the millions of retirees or folks who planned to retire soon.
Because after taking a big hit to their life savings this year, many of them are being forced to rethink their retirement plans.
We all know that stocks have plunged this year, with the S&P 500 down over 25% at its recent low. But what's not as widely reported by the CNBC stock jocks is the fact that by some measures, bonds have performed even worse.
In fact, Barron's reports that "bonds are experiencing their worst year – in history."
A longstanding article of faith in financial advice circles has been that investors must diversify. The traditional solution offered by Wall Street is the so-called 60/40 portfolio, which I have been stridently opposed to for many years.
The 60/40 portfolio is a mix of 60% stocks, for long-term growth of capital, plus 40% bonds, which were supposed to cushion the blow from a bear market in stocks. After all, everyone knows that whenever stocks zig, bonds zag... right?
Unfortunately, it didn't work out that way in the real world, because in 2022 we got the 100-year storm: a bear market in both stocks and bonds at the same time.
The biggest investment victim of this has been the 60/40 portfolio, which, as you can see in the chart above, is on track for a 35% decline so far this year. Ouch!
And the biggest investor victims have been the millions of retirees or soon-to-be retired investors who were most heavily "sold" 60/40 portfolios by Wall Street. That's because these folks are depending on the income generated by this portfolio to live on.
This leads me to another Wall Street fantasy: the so-called 4% rule, which I have also long railed against.
For decades, financial advisers have told their clients it is safe to spend 4% of the money in their 60/40 portfolio each year during retirement without exhausting their nest egg too soon. But things have drastically changed since the 4% rule became, well, the rule.
Folks are enjoying many more years in their golden age thanks to longer life spans. On top of that, bonds, which used to offer decent, positive yields in the 1970s, '80s, and '90s, have fallen to microscopic or even negative yields in recent years.
So the financial academics who came up with the 4% rule went back to the drawing board. They changed the inputs to better reflect real-world conditions, and they came back with a new and "improved" 1.9% rule.
In other words, instead of being able to spend up to $40,000 a year from a $1 million retirement portfolio, retirees are recommended to only spend $19,000.
And unfortunately, the experts gave little or no advice on how the average retiree with fixed income and expenses was supposed to make the $21,000-a-year haircut to their financial lifestyle.
I have long said that the only way to ensure your financial future is to take matters into your own hands. You can't rely on the stock market (or bond market, for that matter) to earn money for you. And obviously, you can't take conventional advice like the 60/40 portfolio and 4% rule at face value either.
You've got to be creative in finding new ways for the markets to pay you on a consistent basis. My preferred way is using put and call options.
Now, many folks hear the word "options" and get nervous. They've heard that you can lose your shirt trading options. And you can — if you use them the wrong way, speculating when the odds are stacked against you.
But there's an easy "hack" to get around this and make money: take the other side of the trade.
In other words, be a seller of options and not a buyer. That way, the odds are now mostly in your favor.
In fact, I developed and successfully launched an entire TradeSmith strategy built around this concept called Dividends on Demand.
By learning how to place a few powerful but very simple option trades, you can buy high-quality, dividend-paying stocks at a discount price. And you can sell your stocks at a premium above the market price.
And all the while, you are declaring and collecting your own instant dividends, as I call them.
Good investing,
Mike Burnick Senior Analyst, TradeSmith
P.S. Quality dividend-paying stocks like the ones I've described above can be a great way to earn extra money during a lackluster market. And the best part is, you don't even have to wait for quarterly dividend payments; I can show you how to generate income from these stocks yourself whenever you like.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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