3 Steps To Double Your Retirement Portfolio Safely

Posted on April 16, 2014 at 5:38 AM PDT by

As May creeps toward us you will begin to hear traders talking about the “Halloween indicator” or using the phrase “Sell in May and go away.”

Both adages refer to the same long-term trend. According to market theorists, investors abandon stocks over the summer months, selling in late Spring and then buying back in by Halloween. Various studies offer some evidence of the trend, but there are plenty of outlier years in which stocks roar higher over the summer just the same.


The underlying problem with following such trends is your own emotions. The year you decide to follow the Halloween indicator, it won’t pan out. Instead, you miss a double-digit run in stocks. As with any market-timing strategy, it requires serious resolve to stand against the tide of sellers or buyers.

Perhaps you have better things to do with your time. In that case, the far more logical approach is to stay invested and allow the simple fact of passing time to hand you the returns you need to retire. After all, you don’t collect dividends or interest in the months you spend out of the market.

Secondly, if you save regularly, buying over a summer when stocks fall in price is a good thing, It’s buying low, right? So, what strategies work when building a retirement portfolio?

They’re not exciting, I know, but here are three proven ways to double your portfolio safely:

1. Save enough

Americans tend to target a 10% savings rate. That makes a simple kind of sense, but will it work for you? If you make $50,000 a year now and want to maintain that income in retirement, you likely need about $1 million by age 65. That will generate $40,000 a year in safe income, to which you can add Social Security and be just fine.

But saving 10% is just $5,000 a year. If you save for 30 years, you’ll make it to just over $550,000, assuming a market rate of return. A better target for you is $10,000 a year, which is 20% of your current income.

2. Look to compound

Yes, $10,000 a year for 30 years is just $300,000. So how do you make it to $1 million? Compounding. Every dollar you earn in interest, dividends and appreciation grows on your behalf, doubling every 10 years or so at a 7 percent rate of return. Your money earns money. It’s how the entire financial industry works, and it will work for you, too.

3. Avoid high-risk bets

Simple enough so far. So how do people end up losing money in the markets? Often, it’s by trying to speed up the compounding effect. They buy too much of a single asset class, such as commodities or foreign stocks, and ignore the long-term wealth-building power of more pedestrian choices, such as blue-chip stocks.

The narrow, more volatile types of investments have a place in your portfolio for sure. They can help offset losses in those times when markets get chaotic. But an “all in” bet on one or another type of investment is often just asking for trouble down the line.