The stock markets have been a great source of returns for investors, but there comes a time when investors will need to cut back risks and re-adjust their portfolios.
“There are several instances when adjustments are warranted,” Mark Mirsberger, CEO of Dana Investment Advisors, told CNBC.
Mirsberger explained that if your short-term cash requirements have changed, then your allocation will also need to change as well.
“If you were planning on retiring next year but have to delay that five years, your longer time horizon probably means you can afford to take slightly more risk in your retirement portfolio,” Nick Holeman, a certified financial planner and the head of financial planning at Betterment, told CNBC.
However, the opposite is also true. If you are entering your retirement years, it is more prudent to cut down risks and aim for a steadier source of income from your investments to meet your day-to-day needs.
Financial experts have warned that if your risk tolerance has changed, it is important to rearrange your investment allocations to adjust for this new reality.
Allan Roth, CFP and founder of financial advisory firm Wealth Logic, also noted that after a long bull market like what we have seen today, many investors see that their stock allocations now take up a larger percentage of their portfolio than they planned for. Consequently, it is important to make frequent rebalances to better manage risk exposure.
One way for ETF investors to better manage risk and generate some income along the way is through something like the Nationwide Nasdaq-100 Risk-Managed Income ETF (NYSE Arca: NUSI), which seeks current income with a measure of downside protection.
NUSI follows a rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index, an index of the 100 largest non-financial stocks on the Nasdaq exchange. The ETF may potentially complement traditional equity and fixed income allocations or function as a possible hedge for investors.
The Nationwide Risk-Managed Income ETF establishes a collar strategy to generate monthly income. Collar strategies involve holding shares of the underlying stock while at the same time buying protective put options and writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specified price and on a specified date. A call option gives its owner the right but not the obligation to buy that asset instead.
For more news, information, and strategy, visit the Retirement Income Channel.
This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.
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KEY RISKS: The Fund is subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Fund is subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets). The Fund may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Fund employs a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Fund’s investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.
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