It’s time to take the world by storm. In our 50s, we clearly see how we want the back halves of our lives to look. We know how much we want to travel, spend, and give. Now, it is all about creating and executing a plan with extreme passion.
For obvious reasons, money will play an outsized portion of our plan. We can no longer sit on the sidelines and let the world beat us down. Instead, we take it to the world using the financial instruments available. Let’s begin.
Bond Investing in Your 50s. Bonds are the foundation of wealth. Think of bonds as a government training camp. Our capital goes in and comes out the same. However, we can generate some yield while it is away.
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At this point in our lives, we need to understand the difference between all government bonds: Treasury Bills, Treasury Notes, Treasury Bonds, Series “I” and “EE” Bonds, and Treasury Inflation Protected Securities (TIPS).
The idea is to leverage the government bonds that fit your investing preferences and situations. In a perfect world, you could pay all of your expenses from Treasury interest payments.
For example, if you needed $5,000 per month, you could invest $1.33 million in 30-year bonds at 4.5%. That would be a best-case scenario; however, it is unlikely.
But, the reasons remain the same, even if we can’t achieve portfolio size. We don’t want all of our money in risk assets like stocks, cryptocurrencies, and real estate. We need a stable foundation of bonds.
Can you use treasury bond funds instead of Treasuries? Bond funds do not protect you from loss of principal. However, you can trade them much easier. Some of my favorite treasury bond funds are iShares 20+ year (TLT) and Vanguard long-term bond (BLV).
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Remember, your 50s are the time to prepare for your 80s. You want to build your foundation of bonds early so that you won’t struggle in your 80s while earning 4.5%.
If you gravitate to bonds more than stocks, then this is the time to purchase mortgage-backed securities and corporate bonds from your broker. Also, municipal bonds can provide you with a tax shelter.
In summary, stocks will always be sexier than bonds; however, in your 50s, you must start thinking about market downturns and risk profiles. You can counteract the stock market’s emotions with bonds.
Stock Investing in Your 50s. Now that we have a good allocation of bonds (say 40%), it’s time to extract income from the stock market.
That’s right; we continue to move away from growth and into income. The main growth element in our stock portfolio should be index funds.
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I know that looking at high-flying stocks like Nvidia (NVDA), Amazon (AMZN), and Tesla (TSLA) is exciting and fun. However, we can’t live off of these stocks unless we sell them to generate income.
Let’s play out a scenario that can happen in our 50s. Let’s say we have $1 million in NVDA stocks. The cost basis is $500,000 and $500,000 in capital gains. We have enough to retire using the 4% rule.
However, NVDA takes a nose dive because Intel floods the market with semiconductors, and now your portfolio is sitting at $750,000. You must go back to work.
Instead, let’s say we have $1 million in AGNC Investment Corp. (AGNC). Many consider AGNC a “risky” mortgage REIT. We have $900,000 in cost basis and $100,000 in capital gains. AGNC pays us $130,000 in dividends per year, or $10,833 monthly.
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Our AGNC portfolio turned to $600,000 during the market downturn, but they didn’t cut the dividend. We still earn $10,833 per month and can retire. We can also use the dividend income to invest in more stocks during the downturn.
This is a simplified version of what happens to most people when they retire. They have a large 401 (k) that melts away over the years. They spend their retirement years carefully extracting value by selling shares.
On the other hand, dividend and income investors have more shares and income at the end of the year than at the beginning.
I am a hardcore income investor. I believe in income over capital gains. Although I do own a small portion of growth stocks, I primarily use index funds for growth.
I have six types of income stocks: mortgage REITs, closed-end funds, preferred shares, dividend ETFs, high-yield blue chip stocks, and business development companies. You can also read about my 30 monthly paying stocks.
I am 43. I currently earn $2,100 per month in dividends. In my 50s, I will have at least $5,000 in dividends. By the end of my 50s, I will have at least $10,000 per month going into my 60s. This is more exciting than having a large portfolio of NVDA.
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Options Investing in Your 50s. Bonds and options are exact opposites; however, you need them both. Bonds protect capital, while options create capital.
Options trading can be divisive to many investors because it can seem risky. However, you must remember Robert Kiyosaki’s quote, “There are no risky investments, only risky investors.”
You can control your risk in the options market by only investing what you can afford to lose. It’s similar to walking through a casino; you only lose when you play.
Why dabble in options trading? Because you cannot depend on anyone to generate revenue for you in retirement. Creating income from your home office is the best position you can be in during retirement.
Let’s say you receive $10,000 from an insurance payment. You can invest in 30-year Treasury Bonds at 4.5%—earning $450 annually.
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Or you could invest $5,000 in bonds and place $5,000 in an options portfolio. You can earn $500 per month by trading long strangles.
Your income profile looks like $225/year from bonds and $6,000/year from options. That is quite the difference from the same $10,000 insurance payment.
Remember, bonds recently started offering rates over 4% and 5%. What happens when it returns to 2%? Instead, giving yourself the ability to trade options in your 50s opens the door to wealth creation and income generation.
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You don’t need a large options portfolio to supplement your retirement income, just enough to change your life—say, a $10,000 portfolio.
Ultimately, those who go out and learn will consistently perform better than those who hide in fear. Even if options trading isn’t for you, at least know what it means to the capital markets. The options market very often predicts how bonds and stocks will perform.
Conclusion. Bonds are safe but offer low yields. We can counteract low yield by generating high returns on the options market.
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Everything we do in finance works together, like working at a car factory. However, we must be proactive and understand interest rates, mortgages, and dividend yields.
Those who remain ignorant of financial markets will struggle in retirement. Our 50s present us with an amazing time to learn what the markets have to offer.
Every 50-year-old should be able to turn $10,000 on January 1st into $11,000 on December 31st, regardless of market conditions.
If you learn money, money will gravitate to you. If you avoid learning money, then money will hide from you. We don’t have time to play games with money in our 50s; there is simply too much at stake. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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