Time to Sell Your Stocks?

Many retirees are worried about the survivability of their retirement investments in the face of breathtaking stock market losses. As panic has begun to set in, millions of once-sane investors have thrown in the towel. Over the next several months, those who have cashed out will realize that the interest being paid on the money market account where they have stashed their cash will be wholly insufficient to meet their long-term retirement income needs and they’ll be faced with a decision of when to get back into the market. In other words, a money market-only strategy is a strategy that is guaranteed not to work. 

When times are good and everyone is making money in the market, there’s often little interest in having a written investment game plan. However, that’s precisely the time to memorialize your money rules. It’s not too late to do that right now. Here are some thoughts to get you started:
Accumulation Phase. If you are more than 5 years away from needing access to your money, don’t panic. That should be more than enough time for the stock market to recover. 
Pre-retiree Phase. If you are planning to retire within the next 5 years, consider postponing your retirement plans until the economy and stock market recover. Use the time to focus on structuring a bond ladder equal to 5 to 10 years worth of annual income need. Ultimately, your portfolio should have a balance of both stocks and bonds with stocks representing a minimum of 50% of the total so that you have adequate long-term growth. See my specific stock strategy below.
Retiree Phase. If you are retired, hopefully you had the foresight to set aside five to seven years or more of cash flow need in fixed income securities such as certificates of deposit, money market accounts or high quality bonds. Again, if you do have at least five years of income needs secured, don’t panic. The stock market will recover before you run out of cash. As it does, you can begin to rebuild your income ladder.
Everyone. Revisit your stock portfolio. I do not recommend selling stocks in the middle of a bear market but it is a good time to review your stock portfolio and consider making a lateral transfer to a basket of stocks with specific characteristics.    Those characteristics include:
  • Large blue chip companies with superior balance sheets. Companies with large cash positions and year-over-year positive cash flow will be in the best position to take advantage of a recovering economy. 
  • Companies with a long-term history of paying dividends to their shareholders. Dividends act as a ‘buffer’ against market volatility.   For retirees, dividends, when combined with the interest from fixed income securities will help to stabilize cash flow.
Examples of the types of companies to consider: Caterpillar (CAT) with a current dividend of approximately 4.4%; DuPont (DD) with a current dividend of approximately 6.7%; AT&T (T) with a current dividend of approximately 5.7%; Intel (INTC) with a current dividend of approximately 4.1%; and Southern Company (SO) with a current dividend of approximately 4.7%. Ultimately, you’ll need a basket of at least 20 companies from at least half a dozen different industries.
If you need help, seek the advice of a professional financial advisor.