South Florida Retirees Are Starved For Portfolio Returns

December 10, 2013 § Leave a comment

While low interest rates may be designed to stimulate spending in corporate America, they are hurting seniors and pre-retirees in Palm Beach County.

Inside the gates of communities in Palm Beach Gardens such as Mirasol, PGA National, BallenIsles, Frenchman’s Creek and Old Palm and in the upscale enclaves of Palm Beach and Jupiter Island, many concerned retirees are feeling the pinch of low interest rates and falling bond values. To compensate, they are forced either to cut back their spending or take on additional portfolio risk in search of higher returns.

The Lyman Group has been working with South Florida’s wealthy families for 30 years. Here is our advice:

  • Don’t underestimate your life expectancy. We often see people who’ve retired too early. Savings that might have been adequate for their parents (who had shorter life expectancies and higher overall rates of return) are not adequate to support a longer life expectancy. Members of the generation now approaching retirement are living an average of seven years longer than their parents, so they need to rethink both the age at which they should retire and how much savings they will need to retire.
  • Understand the fundamentals behind each asset class in which you invest. What are the mechanics and the driving forces underlying each investment? Learn their respective strengths and weaknesses. If you’re not willing or don’t desire to put in the time, hire a professional. Understand also that an advisor is much different than a broker. Advisors are paid to dispense advice and implement that advice. Brokers are paid to sell products. That qualitative difference is too important to ignore, especially in “over-brokered” areas like West Palm Beach and North Palm Beach.
  • Know that higher potential yields generally mean higher investment risks. While this is a generalization, it’s usually true. We can discuss a number of alternatives investments, ranging from real estate to insurance products, which offer higher rates of return.

In the current environment, many asset classes may be overvalued, presenting not enough return for the risks inherent in the investment. We think bonds fall squarely in this category at the moment. After hitting historic lows earlier in the year, bond yields bubbled up on “Fed talk,” driving portfolio values significantly lower in June 2013.

If you don’t know the term “duration,” call us for a clear explanation. It’s a critical concept for the management of your fixed-income portfolio, especially in a rising interest rate environment. We believe the present environment, one of the most challenging in more than 50 years, presents an opportunity for Palm Beach County investors starved for yield to learn more about sophisticated investing.

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