Making your investments work for you
Most investors who are younger than retirement age tend to take a more aggressive approach to managing their portfolio. Many younger investors are willing to purchase riskier investments for the potential of higher rewards. This is not true as we are focused more on ensuring we have the funds we need for retirement. We become far less willing to put our investments at risk for a greater return. When we are focused on retirement, we tend to view our investments differently and we will typically sacrifice higher returns for stability.
Why we seek stability as we age
For most investors, retirement means they are going to be counting on the income from their portfolio to supplement other retirement income. For most of us, we are not willing to sacrifice our current lifestyle to live on less money. Therefore, our investment portfolio must not only preserve our initial investment, but must also generate a certain level of income. You may not think this is possible but for many investors, this is the reality.
Managing our money as we age
Portfolio balancing is something we should look at regularly and we should focus on more as we get older. In addition, avoiding taking on additional debt, paying down existing debt and making sure we are adding the maximum amount allowed to our retirement accounts becomes the most sensible
approach to financial planning. Money management often becomes a serious focus as we age and it is important to ensure we are going to be able to manage our finances once we are no longer working and depending on our retirement income.
Managing your portfolio
As you approach retirement age, you need not avoid investing; instead, you should focus on those investments that offer a safe haven for your money. Most people approaching retirement age will keep the bulk of their investment portfolio in high quality bonds. In most cases, they will have a mix of bonds that have medium-term and short-term maturities. The balance of their funds will often be invested in higher-risk securities to allow them to take advantage of growth opportunities.
Always stay fully invested
Oftentimes, as we approach retirement, it is tempting to liquidate our portfolio and hold our assets in cash. However, this is often a losing proposition. Studies show that those investors who remain fully invested often do better in the long-term. While the stock market can be volatile, investors who keep their positions are often doing far better than those who liquidate all of their positions. In many cases, investors can take advantage of lower stock prices in a bear market to reduce the overall cost of individual positions.
It is often a good idea to review your portfolio on an annual basis, liquidate some of the positions that have shown significant growth and reinvest some or all of those funds into the positions that have not performed as well. This helps reduce an investor's cost basis.
Planning for retirement is important for everyone and as an investor, you know there is always risk when dealing with the stock market. However, it is possible to maximize your returns while minimizing the overall risk of your portfolio.
