More folks than ever are making their way to advisors' doors, anxious for the kind of investment advice they hope will help them retire at all, if not well. Frankly, the good news and bad news are pretty much one and the same: Investing for retirement is feeling pretty dicey. That has investors looking for all the advice they can find.
With the performance of the stock and bond markets feeling about as predictable as the path of the next hurricane, investors are looking for some steadfast direction. An estimated 73 million Americans are scheduled to retire over the next 20 years, leading many to seek financial advice, often for the first time.
The level of interest in growing and preserving wealth for preretirees isn't surprising, given the fact that so few have done any planning at all, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research. "The kicker is that two-thirds of Americans never calculate how much they need to save for retirement, and most age 40 to 59 have saved less than $100,000," he says. "We've got tools for allocation, diversification and the selection of stocks and bonds, but what still needs to be addressed is the need for adequate savings. This is what good planners are telling their clients."
While advisors report that their phones are ringing off the hooks-many of the calls from investors who want the skinny on how to invest for retirement-we started wondering what advisors are telling them. How do you invest for retirement now? To find out, we asked planners across the country to tell us where they see opportunities and pitfalls today and in the years ahead. We wanted to know what they're doing for their 50-something clients in particular. Their answers, which follow, are enlightening, sobering and disparate.
Advisor J. Michael Martin is concerned what impact negative returns will have on client portfolios over a significant period of time. The former director of investments at T. Rowe Price says he's not at all certain that the markets will provide well for investors any time soon or for any worthwhile period of time. "If you take the traditional approach and fool with the stock and bond mix in client portfolios you're willing to take more risk, because you believe if you ride things out you'll take advantage of future highs," Martin says. "I'd like to suggest that maybe we won't have that upside. I'm not sure we've gotten everything out of our system yet."
Several years of negative returns along with inflation can reduce a $1 million portfolio to $750,000 in the blink of an eye, says Martin, president and chief investment officer of Financial Advantage Inc. in Columbia, Md. The price of investments right now-which he terms "overpriced"-also has him concerned. "Because all asset classes are expensive now, just changing stock and bond ratios, no matter how you move the shells around, won't get you a high single-digit return," he says. Fifty-somethings "have miles to go before they sleep." Martin believes investors can expect bond returns in the 4% to 5% realm, with stocks in the mid- to high-single digits over the long term. "We're used to building portfolios earning 7% to 8% a year, with about 4% coming from cash income. Now it's like 3% and its harder to get the appreciation," says Martin. "It makes you stay up nights trying to dream stuff up."
To be sure, thinking outside of the proverbial box when it comes to helping preretirees accumulate some of the wealth they'll need to retire has become critical. For Martin, part of that strategy has come to mean shorting the market using institutional shares of Rydex's inverse index funds. While he usually holds about 6% of the typical client portfolio in Rydex, he might increase that to 10% for a 50-something investor who wants to be aggressive.
"This is an important hedging and rebalancing tool for us right now," says Martin, whose seven-person firm manages $170 million for about 160 clients. "This allows us to take gains in a down market and reinvest in long funds when the opportunity arises, instead of idling in cash which pays less than 1%."
Rydex isn't a permanent position in Financial Advantage's portfolios. "We think it's appropriate when the market is in the top 20% of its historic range. Below that, Rydex won't be as clear an opportunity."
Another "high-conviction concept" Martin is advancing aggressively for the next five years is real assets, especially energy. The prices of real assets will have to rise because demand will continue to increase as supply flattens, he says. In light of dsemand, his investment team is eyeing the oil and gas arena, oil service and mining resources companies. To date, Martin likes PIMCO Commodity Real Return Strategy Fund and T. Rowe Price New Era Fund.