Monday, February 23, 2015

Tips for Making Safe Retirement Investments

Many who are creating a retirement plan or re-positioning their portfolio have heard stories about people who have made risky investment decisions and who have been forced to work many years after they reached retirement age. Some may have been hit hard by a market downturn and may have not been properly diversified, and others may have made truly risky investment decisions. If you are preparing for retirement, you understandably want to find the perfect balance between a great return on your investments and minimizing risk. There are a few options to consider as you prepare for retirement.

Bonds and CDs


The safest investments are those that have minimal or no risk, and these include CDs and bonds. Provided you can keep your money in these investment vehicles for the designed term, you can expect a moderate and known return. However, it is important to note that these have a very low yield in comparison with other investment vehicles. If you are trying to maximize your yield to protect the value of your portfolio against the effects of inflation, you may need to mix bonds and CDs with other types of investments. A stocks and bonds mix, as described below, is the most common investment hybrid retirees turn to when bonds are involved. 

Life Insurance Annuities


There are several different types of annuities available for you to consider, and these generally provide you with a guaranteed stream of income for the term of the annuity. Some annuities can be purchased with guaranteed payments until your death, and this can give you the peace of mind that you may be looking for in your retirement years. While the benefit with an annuity is a steady stream of income, you do lose control over your lump sum investment of capital. This investment strategy may ensure your continued returns, in the form of a fixed lifetime income, but it does come with some steep fees. Insurance contracts are notoriously complex and difficult to understand, and in combination with the high investment management fees, are certainly not right for every investor. 

A Mix of Stocks and Bonds


If you want to take a more hands-on approach with your retirement efforts, you can consider creating a portfolio that has a balanced combination of stocks and bonds. The stocks can provide a hedge against inflation as well as growth from dividends. The bonds can decrease the overall risk of your portfolio for stabilization. If you’re worried about market panic or suddenly running out of money during retirement, this option may be the best way to ensure your own peace of mind in the years to come. The exact allocation will be dependent on your general tolerance for risk. Make sure your financial advisor can be trusted to make the right decisions for you and your investments if you decide to invest in both stocks and bonds. 

A Completely Diversified Portfolio


Another option to consider is a completely diversified portfolio. For example, rather than invest all of your money into a life insurance annuity, you may purchase a smaller annuity coupled with an allocation of stocks, bonds and growth stocks. While there is some risk associated with including stocks in a portfolio in retirement, it can provide you with a hedge against inflation and a potentially higher yield.

You may consider the amount of capital you have available for investments, your need for growth and your tolerance for risk when preparing your retirement plan. A Sunshine Retirement senior lifestyle activities advisor recommends taking into consideration any lifestyle changes you expect to experience upon retirement when deciding how to invest. Because these factors can vary for each investor, there is not a catch-all solution that is suitable for all needs.


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