You’ve made investments, and your reasons for doing so can basically break down into two key groups: growth and income.  If you’re looking for growth, your primary investments need to be in stocks or mutual funds that have the potential for capital appreciation.  But, if you also want to get income from your investments, you’ve got some choices to make.

You can, of course, invest in fixed-income vehicles such as bonds, which typically offer regular interest payments.  Also, as long as the bond is held until maturity, the principal amount is returned, provided the issuer doesn’t default.  You can mitigate this risk greatly by purchasing only those bonds that have received the highest grades from independent rating agencies.

Beyond bonds, you can also get income by investing in stocks that have a history of paying cash dividends.  In the short term, most common stocks typically offer lower income potential than bonds or CDs.  But, many high-quality stocks have consistently increased their dividends.  That means you have the potential for rising income.

That’s not to say you should abandon your bonds in favor of dividend-paying stocks.  No matter how high their quality, they can still carry more risk—at least in terms of potential loss of principal—than high-quality bonds.  So, when you're investing for income, you will likely want to choose a mix of bonds and dividend-paying stocks that best fits your individual risk tolerance and long-term goals.

Income Strategies During Retirement
While it’s important at any age to know how to get income from your investments, it’s particularly important to make the right choices during your retirement years.  At this point in your life, you’ll need to look beyond the issue of “bonds vs. stocks” and consider a new question: Which sources of retirement income should you tap first?

To answer this question, you’ll have to take a look at the source of your retirement.  You can probably anticipate drawing from three main sources: 1) tax-deferred accounts such as your traditional IRA and your 401(k) or other employer-sponsored plan; 2) taxable savings and investments; and 3) Social Security benefits.

The exact formula you choose for taking income from these three separate pools depends on your individual needs and circumstances.  Often, however, it is a good idea to spend down your taxable savings and investments before you touch your tax-deferred plans.  Since taking money from your tax-deferred accounts can trigger income taxes, you may want to put that off until you are required to start taking withdrawals at age 70½.

How About Social Security?
When should you start taking social security payments?  Again, there’s no one right answer for everyone; you’ll have to weigh a variety of factors including your other sources of income, your age at retirement, and your expected life span.  Keep in mind that although you can start taking Social Security as early as age 62, your monthly checks will be larger if you wait until your “full retirement age” which can be anywhere from 65 to 67.  For every year past your retirement age that you delay collecting benefits, you’ll get “bonus” payments which can be substantial.  Once you reach 70, you’ll have earned the largest monthly payment you’re going to get.

A qualified financial advisor can help you determine the appropriate strategies for drawing on your investment income and retirement plans. Maintaining a sufficient level of income is essential to your long-term financial well being, so you’ll want to make all the right moves.

For more information:
Edward Jones Financial Advisor
Laurence Rothstein
770-205-1579
5285 Lake Pointe Center Drive, Suite A
Cumming, GA 30041

Using the P/E ratioto guide investments

Many stocks were pummeled by the long and severe market downturn. As a result, you can now find plenty of good, quality stocks selling at low prices. On the other hand, some companies are in industries whose near-term future looks uncertain — and even though these stocks, too, may be inexpensive, they aren’t necessarily good deals. So, how can you tell the difference between good stocks selling at temporarily low prices and not-so-good stocks selling at deservedly low prices? One tool that may help you is the price/earnings (P/E) ratio.

Five reasons to be bullish about financial markets

During a long downturn in the financial markets, it’s hard for some people to stay cheerful about their prospects for investment success. And that’s not surprising, because a daily diet of bad news can take its toll on investors’ outlooks. Yet, if you look beyond the headlines, you can actually find some reasons to believe that brighter days lie ahead.

Here are five of these potential causes for optimism!

 

Recovery may be near.

The financial markets obviously are connected to the overall U.S. economy, so it makes sense to keep an eye on how the economy is doing. As you know, we’ve been in the grip of a long and painful recession—but that may change fairly soon. In fact, the recession is likely to end in the second half of 2009, according to a majority of the economists surveyed by the influential National Association for Business Economics. And since the stock market has historically anticipated an economic recovery by about six months—and begun responding favorably—now may not be the time to abandon your long-term investment strategy. Of course, past performance is not a guarantee of future results.

 

Market rallies can happen quickly.

No one can predict the exact moment a sustained market rally will begin—but history has shown that rallies can start quickly and take off sharply. Consider this: In the first year of a recovery, investors have recouped an average of 82 percent of what they lost in the entire prior bear market, according to Standard & Poor’s. And since 1932, the S&P 500 has gained an average of 46 percent in the year after stocks have hit bottom. Keep in mind, though, that we have experienced a larger-than-usual drop in the market, so we may or may not see the rally produce these historical results. Still, if you are out of the market when it does rally, you are likely to miss some of the strongest returns.

 

Low prices may mean good opportunities.

By almost any traditional measure of value, investments are now very attractively priced. And when prices are low, returns over the long term tend to be higher. Keep looking for quality investments —like other investments, they’ve been hurt by the downturn, but if their fundamentals are still sound, they could offer the greatest potential for long-term rewards.

 

The Treasury and Fed are working overtime to support the U.S. financial system.

While the problems of resuscitating our financial system are enormous, and the solutions are not clear-cut, the Department of the Treasury and the Federal Reserve are working hard to support the credit markets, boost liquidity, lower mortgage rates, and take other steps that can ultimately benefit the economy and the investment markets.

 

Low inflation can help boost “real” returns.

Inflation, as measured by the Consumer Price Index, is currently close to zero. As an investor, you have reason to welcome a low inflation rate, because when inflation is high, it can erode the “real” returns of your investments. Consequently, you may be rewarded by investing in vehicles which, for the moment, are producing only modest returns.

Keep the above factors in mind when you make investment decisions. Talk to a qualified financial advisor: If you’re going to achieve your long-term financial goals, you will likely benefit by investing in even the gloomiest of markets. And, soon, there might be more than a few rays of light ready to pierce the clouds.

For more information:
Laurence Rothstein
Edward Jones Financial Advisor
770-205-1579
5285 Lake Pointe Center Drive, Suite A
Cumming, GA 30041