BY JULIA ANDERSON
Futures contracts are beyond my investment expertise.
Neither do I understand “puts” and “calls.” Nor do I care to buy gold, collectibles, artwork or limited partnerships in the hope that their values will increase. Annuities make me nervous.
For me, these investment options for my retirement savings are too risky even though their promised payout might be tempting.
On the other hand, if I put money into U.S. Treasury bonds or into a bank savings account insured by the federal government, it would be secure. No risk there.
I am an investor in the middle trying to balance risk against a reasonable investment reward.
For me that means investing in high-grade blue-chip dividend-paying common stock in U.S.-based corporations and in low-fee growth U.S.-based mutual funds such as a S&P 500 Index Fund.
Bottom line: I am willing to endure a future economic downturn and accompanying stock market sell off because history shows that the American economy is resilient and will recover. Over the past 75 years, U.S. markets have averaged 10 percent annual growth. To benefit as an investor, I must take on moderate risk to ensure my long-term financial future.
Determining your RISK TOLERANCE is an important but often over-looked aspect of investing. However, risk tolerance is among the first things an investment adviser will ask you about. Be prepared with an informed answer.
Too many investors (especially woman) get off track because of their response to the risk tolerance question. “No, I don’t want to see the value of my investments ever go down,” they say. “No, I can’t stand the idea of ever losing money.”
During a recent Women & Money workshop, a woman in the audience lamented to me that her husband was in charge of their retirement investments and that “he does not trust the stock market. All our money is in bank CDs,” she said.
I told her that strategy was OK in terms of no risk but that she and her husband were likely getting a 1 percent or less return on their savings over the past 10 years. That’s while U.S. stock markets delivered annual average gains (share price increases and dividends reinvestment) of 17 percent. That means a $10,000 stock investment 10 years ago would now be worth $48,068.
She left the presentation upset. I doubt she will have any success convincing her husband that his savings and investment strategy is too conservative. I didn’t have the heart to tell her that they are losing money on their “safe” CDs investments because inflation (the rising cost of living) is eating into the purchasing power of their nest egg.
People --both men and women -- get nervous when markets are volatile (as they are now at the beginning of 2020) and there’s more talk about the next recession. Our bull market can’t go on forever, right?
Preparing for a recession
How should we plan for a downturn? Where should they put their money? In bonds, stocks, the bank or under a mattress? The risk factor is becoming more importance.
Burton Malkiel, author of the famous investing book, “A Random Walk Down Wall Street,” wrote a piece for the Wall Street Journal recently (Dec. 2019) that offers these suggestions:
Back to the risk factor. In his book, Malkiel makes a case for taking on moderate risk. He points out that the return on a portfolio of U.S. common stocks has averaged 10.5 percent a year over the past 25 years or so. Your portfolio with reinvested dividends (at 10 percent) should double every seven years!
Further, he suggests that your capacity for risk is usually related to your age. The younger you are the more risk you can take on because time is on your side and you have many working years ahead of you to accommodate market downturns. A higher-risk portfolio of smaller growth stocks might be appropriate, he said.
If you’re on your 60s, facing retirement with less income, a portfolio of safer investments makes sense. Bonds and high-dividend stocks could be the solution. Bank CDs still may not be the answer because your savings have got to generate some income.
“The longer you can hold on to your investments, the greater should be the share of common stock in your portfolio,” Malkiel states. “Moreover, the longer an individual’s investment horizon, the more likely it is that stocks will outperform bonds.” (here's a link to a 2010 Malkiel lecture the continues to have merit, click here.)
(The Internet offers numerous calculators that will determine the return on investment with compound interest (dividends) and savings contributions. Here's one, click here.
My tips on managing RISK:
1. Be informed. Read Malkiel’s book, “A Random Walk Down Wall Street.” or at least read the parts that are relevant to your age and financial situation. Go online and watch his investment lectures on YouTube. Click here.
2. Understand that downturns are normal and part of the trade-off between risk and financial reward. Don’t sell during a downturn. Don’t expect to jump back in before markets go up.
3. A higher rate of return typically means taking on more risk. Don’t invest in stuff you don’t understand, even if you are guaranteed a high return. There is no free lunch. And realize that short-term fluctuations in markets can be scary. Don’t panic, stay the course.
4. Realize that it doesn’t have to be all or nothing.
or me, a return of 2 to 4 percent a year on an investment is reasonable. Most of my investment portfolio generates dividends in the 2 to 3 percent range, plus whatever happens to the value of the stock. I continue to reinvest dividends paid inside my tax deferred IRA even as I know must take the Required Minimum Withdrawals. I have enough in cash to cover RMDs for a year That way, I’m prepared for a downturn and won’t have to sell principal at a lower price.
5. You don’t have to be a stock picker. Managing risk might mean investing in a low-cost index fund tied to the S&P 500 or a broad mix of a sectors such as telecom, high-tech or industrials. Look at the track record for the funds you buy and be sure to check out any management fees that can eat into your return.
6. Save and invest even in bad times. Make saving AND INVESTING a regular part of your long-term financial strategy.
YouTube - What is investment risk?, click here.
“A Random Walk Down Wall Street, “by Burton Malkiel, click here
"A Way to secure retirement income later in life," click here.
The Risk of Different Types of Investments, click here.
Saving and investment options, usa.gov, click here
Risk Management and You, Edward Jones, click here.
BY JULIA ANDERSON
Four years ago this week, I began experiencing pain in my butt. Actually, a bit lower where my butt muscles and upper thighs overlap. It felt like sore muscles from intense exercise, only it kept getting worse.
Over the next week, the pain showed up in my shoulders, arms and ankles. It became so bad that I couldn’t turn over in bed without groaning in pain. I crawled from bed to the toilet on my hands and knees to avoid pain. I couldn’t lift my arms to put dishes in kitchen cupboards, I couldn’t lift my legs to dry them after a shower. All because it hurt like my joints were burning up.
I used my fingers to “pull” my arm forward along a table top to grip a cup of coffee to avoid the pain in my arms and shoulders. At the worse of it, my walk became a shuffle. I was frightened, depressed and hurting.
A physician’s assistant diagnosed my condition: Polymyalgia Rheumatica. She put on me on prednisone (a steroid) and methotrexate, the go-to drugs for severe arthritis. She referred me to a rheumatologist, but the appointment was a month out. Since then my diagnosis has evolved to rheumatoid arthritis, then psoriatic arthritis, or both. Turns out there are 100 different kinds of arthritis and no two individuals may experience them the exact same way.
For those unfamiliar with RA here’s the definition: It is the most common type of autoimmune arthritis caused when the body’s immune system turns on itself and begins attacking healthy tissue. It is not curable, but treatments can stop (or reduce) pain and swelling. (www.rheumatology.org)
In those first months, I was burning up Google finding out about this disease. Who got RA or polymyalgia rheumatica, why did it happen and what treatments might work? I learned I was a prime candidate for RA: Female, white (Northern European), near age 70 with a genetic history of arthritis in the immediate family. Check.
In learning about RA, I realized that I was lucky. RA can attack people much younger, even children. It can wreak havoc on the body by going after tissue and bone that may result in surgeries, chronic pain, difficulties in walking, climbing stairs.
When I first learned of my diagnosis, I casually mentioned my situation to a well-meaning “friend” who was a nurse. Her immediate comment shocked me. “So sorry for Ken (my husband), he’ll be pushing you around in a wheelchair.” Thoughtless on her part? Yes!!
But four years later, so far, so good. I’m not in a wheelchair and don’t expect to be for a long time. My primary care doctor said I likely would die of something else before finding myself an invalid.
In fact, my fourth year with this disease has been my best. I ran a 5k fun run this fall. I trained on the tread mill for it and came in first in my age group. Full disclosure: There were just three women over 70 in the run. Only 14 people (men and women) ran it out of about 135 total. I was surprised by the low number.
A five-day visit to New York City in the fall had me walking all over town to museums, parks, the Empire State Building. My husband and I haven’t slowed our pace of travel that this year included a coast-to-coast ride across the U.S. on his motorcycle. Lots of getting on and off the machine.
It’s a long way better than where I started.
The first year meant stopping the prednisone, which I hated for the weight gain, sleeplessness and depression it caused. After trying several drugs in combination with methotrexate, we settled on just methotrexate, which suppresses the immune system. As the RA symptoms began to recede, a bout of sciatica down my right leg meant dealing with another round of intense pain. That resolved after two injections of cortisone in my lower back.
I began doing stretch exercises to reduce back and neck pain. I walked. I kept a pain chart with RA pain ranging from a high of 7-8 to a low of 5. The chart helped my rheumatologist continue to tweak medications and treatments. The sciatica pain had a separate chart in the 8-9 range. That pain meant gasping for air from pain every time I got out of the car. I became careful in how I moved.
My doctor prescribed 25mg daily of diclofenac to reduce inflammation and resulting pain. I went to a physical therapy clinic to help with the sciatica and a chronic stiff neck. I stopped taking sulfasalazine in combination with methotrexate. After reading the side effects of diclofenac, I cut my intake to only as needed. (Not often). I worry about heart disease and my blood pressure is on the high side. Diclofenac can exacerbate those problems.
My pain chart began to show real improvement toward the end of the first year. Since then my doctor suggested that I increase my folic acid tablets from two daily to three to combat nausea on the day, I take the methotrexate once a week.
She sent me to a pain clinic for help with the stiff neck issue. The PA there gave me three “micro” shots of cortisone, which more or less solved the problem. I do shoulder rotation exercises at home using a “rubber band” to keep things from freezing up.
In years two and three, my doctor began to further analyze my symptoms and suggested that I may have psoriatic arthritis instead of regular RA or a combination of the two. I don’t have the scaly skin patches that are typical with psoriatic arthritis except on my elbows, but sometimes joint problems show up first. I certainly have intermittent lower back pain that comes with psoriatic arthritis along with stiffness. Sometimes my ankles and finger joints hurt a lot.
In summary: At the end of these four years, I am living with arthritis pain at a low level that does not interfer with my daily activities, travel or yard work. I do have fatigue. I do have pain spikes. I take aspirin or Tylenol as a preventive before engaging in heavy exercise. I do worry about where I'm headed, long term.
I tried cutting back on methotrexate earlier this year but found out I need the prescribed 8 tablets weekly to maintain the low 1-2 pain level. Sleeplessness can still plague me. I can’t drink red wine without consequences.
Psychologically, I have my confidence back. I can live with this disease and feel lucky that I am better off than most. Getting daily exercise is a key to my well-being…lower pain levels, better sleep, better weight management.
What triggered my RA/psoriatic arthritis? I have theories:
My dentist put me on a high dose of antibiotics to combat an infected wisdom tooth just prior to the rapid onset of the acute RA. The drug killed my gut bacteria. They say there’s a connection between gut bacteria and RA.
My advice for those living with arthritis:
Find a doctor you trust, work with that doctor over the long haul. Keep a pain chart and track other symptoms. Know that improvement comes and sometimes goes.
Believe that you will get better knowing that it takes time. Mental outlook is key.
Exercise: job, lift weights, do isometrics.
Change your diet. Don’t drink.
Get sleep. Work with your doctor to get help.
Enjoy every minute of every day!!!
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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