My Pre-Retirement Years Amidst USA's Deepest Recession

by Bob
(Sedona, AZ)

I am currently living the few years that I expect to be the ones that are immediately prior to my retirement.

My pre-retirement years happen to be those in which the U.S. is amidst its deepest recession since the Great Depression. Thank goodness predictions of a second Great Depression do not seem to be coming true.

Here is what I am now doing to contend with my personal place in the life cycle and our country's place on its historical economic time line.

During 2009, I invested in stocks or equities up to a level of about 50% of my entire portfolio of liquid investments (including savings, 401K, checking accounts, etc.). This is a higher percentage of stocks than many recommend.

Since I am 61 years old, some would say I should have 61% of my assets in bonds and only 39% in stocks. But, I needed to recover some lost capitol from the stock market plunge in late 2008 and early 2009, and I guessed correctly that stocks would bounce back nicely in the second half of 2009. I was nicely rewarded for taking some moderate risk in that period.

Of course, some would argue that I was still conservatively invested in stocks at 50%, especially since part of what I consider my bond portfolio consists of an annuity that guarantees a 4% return.

Within the rest of my bond investments, I invested only in short term bonds , and I purchased high yield corporate bonds. These also did well in 2009 in terms of both price appreciation (as other investors followed me into these positions of relative safety) and yield (interest payments on the bonds).

As for 2010 and the next few years, I am now backing down to about 40% stocks or equities, 45% bonds, and 15% cash (CD’s and money market funds).

I am watching this market carefully, as I expect stocks will need to retreat a bit after this run, and I am afraid of problems yet to come from our nation's massive debt. Because I fear inflation, my bond portfolio has shifted some toward Treasury inflation protected securities (TIPS).

I will not want to be in cash if inflation returns with a vengeance, and I am beginning to accumulate some gold, in the form of an exchange traded gold index fund (GLD), to the tune of about 4% of my stock portfolio so far.

I will likely begin to buy more high dividend, high quality stocks soon. Apart from a constant vigilance over my investing assets, my key strategy at this time is to work just a little longer than I once planned, so that I can continue to add new money to these investments, while putting off the retirement period when I will begin draining these accounts.

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