It is mid-May, and the markets are up about 15% year-to-date for 2013. The question: Is it time to sell appreciated stocks to fulfill the liquidity needs that we avoided providing for when the markets were down? Our Ten Year Rule investment philosophy allows us to weather a down market by providing liquidity 10 years prior to when the money is actually needed. Thus, if the market is down, you are not forced to sell stocks to cover your spending needs. Now that the market is up, is it time to provide for the eighth, ninth and tenth years’ liquidity?
The reason investors are hesitant to do so is our unusually low interest rate environment. Most are not interested in tying up 10 year money in a Treasury that yields less than 2%. One strategy is to take money from your general stock portfolio and move it to an income portfolio to cover the eighth, ninth and tenth years’ needs. The minute interest rates begin to rise, you can then take the money and invest in the Treasury bonds. With a portfolio of high quality dividend-paying stocks, an investor may be able to earn 4% to 7% in dividends, which is far better than what Treasurys are paying.
If you cannot afford the market risk of an additional stock portfolio, we recommend placing your money in one-year CDs. If you keep the maturity short, you will be able to reinvest in a year when, hopefully, interest rates are higher. We recommend that you avoid locking in your long-term money at today’s terribly low rates.
At Henssler Financial we believe you should Live Ready, which includes having a strategy for your 10-year liquidity needs. If you have questions regarding your liquidity needs, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
