When it’s time to take money from your IRA, what strategies should you follow? Here are some tactics to consider:
- Sell high. When the time comes to sell, re-balance your portfolio. In early 2000, for example, your IRA may well have been tilted towards large-capitalization growth stocks, because those stocks had enjoyed a huge run-up in the late 1990s. If so, you could have sold some of those shares, which would have reduced your exposure to the bear market that ripped growth stocks in 2000-2001.
- Sell what looks uninviting. Today, after two years of heavy losses, large-cap growth stocks may comprise a smaller portion of your portion while small-cap value stocks have enjoyed two excellent years.
- Nevertheless, there are still some large-cap growth stocks that seem overvalued, compared with small stocks and value stocks. Therefore, while you might want to take some profits in the small-cap area you also might continue to selectively sell some high-priced growth stocks.
- Slowly shrink your exposure to stocks. It’s probably a good idea to gradually trim your stock market allocation as you grow older. At age 50, for example, you might have 80 percent of your investments in stocks. That portion might decline, bit by bit, to 65 percent by age 65 and to 50 percent by age 80.
Therefore, when it comes time to liquidate IRA investments you might sell more stocks than bonds, chipping away at the equity-to-fixed-income ratio.
