![]() To help home in on some top-quality lower-risk stock and bond funds that have been battle-tested across a variety of economic environments, I used Morningstar Direct software to focus on a statistic called Maximum Drawdown, which depicts the biggest loss a fund has endured over a given period. But most of the low-volatility ETFs weren't around the last time the markets went down and stayed down-the financial crisis of 2007-2009. In general, however, Morningstar's investor return research points to a connection between lower-volatility products and better investor outcomes.Īcademic research has also pointed to the virtue of low-volatility stocks, and a bumper crop of exchange-traded funds have arrived to invest in that market segment. You wouldn't necessarily want a portfolio composed entirely of low-risk stock and bond funds, because risk protection usually comes at the expense of return potential. You can also reduce your portfolio's risk level by tweaking the types of stocks and bonds you hold, making room for one or two holdings that have managed to hold up better than their counterparts in periods of market duress. After all, a bad year for bonds, the saying goes, is like a bad day for stocks. If your spending horizon is close at hand-you expect to retire within the next few years, for example-it's wise to keep the funds you'll need to cover near-term spending in safer assets like cash and bonds. When the market is seized by volatility as it has been lately, one of the first things to check is whether your portfolio's mixture of stocks, bonds, and cash is in line with how much risk you can afford to take. Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it. All data and comments have been updated to incorporate recent market activity. As developments unfold, however, you’ll want to keep a close eye on the details to assess the implications to your drawdown strategy.Editor’s Note: A version of this article appeared on Jan. If the standard deduction is doubled, as presently proposed, many more retirees will likely find the QCD to be an attractive strategy.Īlthough a framework for tax changes has been released, it’s probably too soon to make significant changes to your plans at this point given the unpredictable nature of politics. If you do not itemize and you’re over age 70½, making a Qualified Charitable Distribution (QCD) from a tax-deferred account is the best course of action, because it will allow you to exclude the donation from your income. Given the special tax treatment, you’ll want to pay particular attention to how you cover this expense.If you itemize your deductions, donating appreciated equity positions from your taxable account is generally the most powerful strategy. Many retirees tithe or otherwise make regular charitable contributions. For example, if RMDs push you to the top of the 15% tax bracket, consider covering your remaining expenses from Roth IRA withdrawals, allowing you to avoid the 25% tax rate. For example, if you’re looking to sell an appreciated position, covering some of your living expenses through Roth IRA withdrawals instead might allow you to qualify for the aforementioned 0% rate on that gain.Another strategy is to tap your Roth IRA during your highest income tax years to avoid reaching an even higher tax bracket. What’s the point of having a Roth IRA if you’re not going to use it?One powerful way to use your Roth IRA is in conjunction with your other tax planning. When we ask, they often explain that given its many advantages, they don’t want to squander this account. In our experience, most people never touch their Roth IRAs during their lifetimes. Investors in this bracket can potentially qualify for a 0% federal tax rate on qualified dividends and long-term capital gains.There’s a big jump between the 15% rate and the next bracket (25%).When this principle is combined with the right drawdown strategies, the results can be even more powerful. You can read a detailed explanation of this strategy in a previous column of mine here.This principle alone can potentially add years to the longevity of your portfolio by lowering your lifetime tax bills. ![]() To keep your asset allocation intact, bonds can be correspondingly emphasized in your IRAs. For example, consider emphasizing stocks in your taxable accounts, where they receive favorable tax treatment on qualified dividends and long-term capital gains. Asset location refers to the principle of placing asset classes in the right account. To help you get started, here are some of the most powerful tips:īefore deciding which accounts to draw down first, it’s important to make the most of each account type. Having said that, some general principles apply to everyone. The optimal strategy for each person is different, and covering all the possibilities could fill a textbook. 7 Places to Find Income Once You Retire A Better Approach
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |