A Classic Retirement Investment Strategy
When you think about retirement investing strategies, there is one general plan which most financial professionals and retirement planners are comfortable with. Most retirement investment experts recommend a mix of stocks and bonds in your retirement portfolio.
In the traditional arc of one’s career the general recommendations is to move from risky to more stable investments as you grow older and move closer to the age of retirement. So when you first begin your working career in your mid to late 20′s you should be investing mostly in stocks, and even then the general consensus would be to invest in riskier stocks with the hope of making a fair bit of profit in the short term.
As you grow older you should generally begin moving your retirement investments into slightly safer investments, with the idea being that your investments are still making money, but are less likely to lose money as you get closer to your retirement. Stocks are considered a “risky” investment while bonds (corporate or otherwise) are considered to be much more stable and safe.
How much of your retirement investment plan should be stock and how much should be in bonds? The classic rule of thumb when it comes to investing for retirement is to take your age and subtract it from 100. That number is the percentage of your retirement portfolio that should be stocks. So if you are 25 years old then your retirement portfolio should be 75% stock (100 – 25) and 25% bonds.
Most experts recommend re-evaluating your retirement investment plan every five years or so or during major life events like getting married or having a child. In those major life events you may need to adjust the amount of money you are dedicating towards your retirement and likewise you may want to adjust your strategy towards a slightly less risky plan.
A lot of mutual fund companies now have funds which, essentially, do this for you. They’re called Retirement Funds and they are typically offered in 5 year increments, designed around when you want to retire. So you might have a Retirement Fund 2020, a Retirement Fund 2025, a Retirement Fund 2030 and so forth. This makes the whole idea of allotting stocks and bonds easier on you because you simply need to put money into the fund that best matches your retirement plans and the mutual fund manager will slowly begin moving money in the fund from stocks to bonds so that by the time you reach the year 2030 a majority of your investment is in safer bonds, you’ve made your higher profits with the earlier allocation in stocks (hopefully) and you don’t have to worry about doing much money management on your own.
In retirement you’ll want to have as much money as possible at your disposal and you don’t want to have to worry about whether or not your retirement investments are safe. You’ll always want to have some money in stocks just to increase your chances of further income while keeping most of your retirement savings in bonds for security purposes.