Putting some money aside for retirement is something that should become a priority if you are approaching retirement age. In fact, simply putting money aside is not enough if you want to retire comfortably. You need to build a solid investment portfolio so that you can enjoy your retirement while your money works for you.
Investing for retirement can be a daunting task, especially if you have no previous experience with finances. These five basic strategies will help you stay on the right track as you consolidate your plans for retiring:
- Determine which investments are right for you in function of your goals. Ask yourself when you would like to retire and decide whether you should focus on short-term investments or look for investments that will pay out in the long-term. If you feel that short-term investments is what you need to boost your nest egg so that you can either look for better investments or be more comfortable in the near future, look into investing in certificates of deposits, bonds and savings accounts. On the other hand, funds, stocks and properties are better options for the long-term.
- Assess your exposure to risks. Investments such as certificates of deposits and bonds backed by governments or financial institutions carry very little risks. On the other hand, products such as stocks and even some funds can behighly volatile. Determine the kind of risks you are comfortable with before investing.
- Diversify and balance your portfolio. Diversifying your investments is the key to protecting your nest egg from market fluctuations. Diversifying does not mean you should invest in as many different products or markets as possible but rather that you should make educated decisions to balance the risks you are taking. You can for instance, adding government bonds to your portfolio would provide you with a hedge against inflation on the long-term if your other investments are susceptible to this risk. Choose how you want to balance your portfolio to create a diversification strategy that reflects your goals and behavior towards risks.
- Re-balance your portfolio. Regardless of how you balance your portfolio, your strategy will have to be adjusted as your goals change, retirement gets closer or as the market fluctuates. You need to establish goals for each investment you make and consider investing your money differently if you do not achieve these goals. Ideally, you should re-balance your portfolio every time a significant shift in market trends occurs.
- Determine an ideal withdrawal rate. Do not make the mistake of withdrawing too much money early in retirement. If you expect your portfolio to support you for at least thirty years, withdraw between 4 and 6% a year at first and adjust your withdrawal rate in function of how your portfolio performs. Your ideal withdrawal rate also depends on the kind of budget you need to live comfortably once you retire.
Managing your investments requires you to educate yourself about finances. If you do not feel comfortable with selecting financial products, deciding on a diversification or balancing strategy or determining a good withdrawal rate, you should think about getting help from a registered investment adviser.
Relying on an investment adviser to select investments and manage your portfolio means you will have to pay a fee, usually a percentage of your revenues. However, working with a registered investment adviser is definitely worth it if you lack the knowledge and experience necessary to making your money work for you.
S.A.C. Investments can help you establish financial goals for your retirement and achieve them. You should contact us to schedule a chat to go over your financial goals and get a better idea of how to plan your retirement.