Retirement: The time you finally get to reap the rewards of your decades of hard work. However, just because you’re done with your 9 to 5 (or almost done), it doesn’t mean you need to stop building your savings with a strategic investment strategy. In fact, investing can be crucial to preserving your retirement nest egg—while still providing opportunity for growth.
Before you begin your new investing journey, here are some key considerations you need to know.
What Should Your Objectives Be?
Everyone has their own goals and priorities when it comes to investing. However, older investors tend to follow an approach focused on:
Risk Avoidance & Capital Preservation
High-risk investments may result in high returns, but too much risk can be harmful, especially when you will be (or already are) relying on your investment portfolio for income. In the case of market downturns, you’ll have limited time to recover from any losses, which means a potentially diminished retirement fund.
To preserve capital, retirees and investors approaching retirement tend to take a security-focused approach to investing, as opposed to a growth-focused approach, which involves investing in stocks that emphasize capital appreciation rather than current income.
Making Your Savings Last
No retiree wants to run out of savings, which means every investor needs strategies for making their funds last. In addition to building a capital preservation portfolio, you might follow other tips to help them stretch your income, such as delaying Social Security, creating a tax strategy, and more.
Types of Investments to Consider
A 60/40 Portfolio Split
The rule of thumb is as you get older, the more you want to invest in bonds over stocks to protect your money from market fluctuations. 60% stocks can help you drive higher returns while 40% bonds can help you lower your volatility; however, you should consider consulting a financial professional to find a ratio that best aligns with your specific financial needs.
Bond Ladders
Although bonds can protect you from market crashes, they’re susceptible to interest rate risk. To minimize the impact of rising federal interest rates on your portfolio, consider bond laddering, which involves purchasing multiple bonds at various maturities.
Certificates of Deposit (CDs)
A CD is a type of savings account offered by banks and credit unions that earns interest on a set deposit amount for a set period of time. These accounts generally come with higher interest rates than a typical savings account, and they’re a relatively low-risk option because they are FDIC insured up to $250,000.
Investing Best Practices to Follow
Know Your Risk Tolerance
Senior investors usually aim for low-risk portfolios aimed at preserving capital, but that may not be the right strategy for everyone. Each investor’s financial situation is unique, and some may be able to focus on high-risk, high-return investments. The key is to understand your risk tolerance, which a seasoned financial professional can help you determine.
Diversify Your Allocations
If your investment portfolio is a primary source of income (and even if it’s not), you want to avoid putting all of your eggs in one basket. In other words, anyone approaching or in retirement needs sufficiently diversified asset allocations to minimize portfolio volatility and safeguard the wealth they’ve worked hard to build.
Review Your Plan Regularly
Significant events are bound to occur throughout your life, your older years included. For many seniors, these often include serious illness or injury, or the death of a spouse. It’s important to go back and review your portfolio to ensure your investments are still sustainable and aligned with any new goals and priorities that emerge after these big changes.
Consider Professional Assistance
Anyone can benefit from the value of working with a qualified financial planner, whether they need help managing a large estate or are looking for personalized investment guidance. From mitigating rash emotional decisions to helping you build an effective investment strategy, your financial advisor is there to help you achieve the retirement you’ve envisioned.
At Ironwood Wealth Management, we take a holistic approach to your financial planning. With an emphasis on client-advisor relationships, our team is here to help you invest in a portfolio that is dictated by your goals and built to meet your financial needs now, and in the future. Reach out today to learn more.
