Retirement planning can be complex, but when it comes to establishing a portfolio that looks ahead to the years after retirement, it really comes down to three simple rules, says Jim Pena, Retirement Services Manager at VectorVest. says Mr.
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Here are Penna’s three rules to follow to build a healthy retirement nest egg.
Rule 1: Have the right tools
Pena said building a strong retirement portfolio requires the right tools. Specifically, investors need a proven stock selection and trading system to deliver the results they need.
“You want to be able to analyze stocks in a way that allows you to make better choices,” he says. “It has to be actionable information. Usually what you get is historical information, but then you have to analyze it.”
Mr. Pena said he is looking for tools that provide revenue projections and other forward-looking information.
“You have to understand not only the future of the company, but also the industry and the market as a whole,” he says.
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Rule #2: Buy the safest, most undervalued stocks you can find.
When Pena chooses stocks for his retirement portfolio, he looks at a metric he calls “relative safety.”
“Generally speaking, what that means is we’re looking for consistency and predictability in the company’s financial performance,” he said. “Is the company profitable quarter-over-quarter and year-over-year? Is there a history of profit growth?”
Other factors Pena considers to determine whether a stock is safe include how long a company has been around, whether the dividend continues to grow if it’s a high-dividend stock, and the company’s debt-to-equity ratio. . In addition to being safe, Pena looks for stocks that are undervalued.
“When we talk about undervalued stocks, what we look at is the stock’s current value and earnings growth rate,” Pena said. “We have to have confidence in the predictability of future earnings. When we see sales growing and profits growing, we look back at what the company has done and look at all of that. We come together to find these blue-chip stocks.”
Pena believes safe, undervalued stocks are the best bet for long-term investors.
“No one can predict the future, but there is no guarantee that these stocks will go up, whether it’s Microsoft or Apple, but at the end of the day it depends on the potential of the company. [having] strong, consistent and predictable financial performance,” he said. “What are two better words to describe the stocks in your retirement portfolio?” [than] “Consistent” and “predictable”? Of course, understand that anything can happen at any time. But a lot of it is about probability. ”
Rule 3: Pay attention to market trends
While many people preach that you can’t time the market, Pena believes that timing the market is actually the key to building a solid retirement portfolio.
“When you say ‘time the market,’ people think you’re commenting on your ability to predict market prices. What we do is recognize trends,” he says. I did. “you can Tim the market — Recognize short-, medium-, and long-term trends in the market. And that doesn’t mean you act on them.Depending on your objectives, we are aware of these trends [and see how that affects the] probability [that a stock will or won’t continue to perform well]”
Paying attention to overall market trends is a necessary part of building and managing a retirement portfolio, Pena said.
“We don’t just buy stock and hold it forever,” he said. “That’s how we manage our portfolios, by recognizing when the trend is reversing. Investors start investing at the start of a bull market and wait until the market sells off and destroys their portfolio. You must use a timing system to exit your investment.
This article originally appeared on GOBankingRates.com: I’m a retirement planning expert: 3 simple rules I swear by to build your retirement portfolio
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