Balancing your need for stability as you approach retirement

One of the most significant challenges investors face is planning for retirement. When you are younger, in your late 20s or early 30s, retirement may seem very distant. However, as you approach your late 40s and early 50s you know you have to plan for the day when you are no longer working. The quandary is how do you structure your investment portfolio for that day?

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

What happens when a company splits stock?

Investopedia defines a stock split as “A corporate action in which a company's existing shares are divided into multiple shares....” While this sounds like a rather simplistic definition, it is as simple as that. To understand what happens when a company splits their stock, there must be a basic understanding of how stock is issued by a company, how the price impacts stock splits and whether the split is a regular split or a reverse split.

When companies issue stock

When a company first decides to go public (and in some cases private companies issue stock internally) the board of director’s makes a decision as to how much stock will be issued by the company. This process will sometimes involve different classes of stock such as common stock, preferred stock, convertible stock and treasury stock. Stocks shares that are held by shareholders and company insiders are further identified as shares that are outstanding. Treasury stock may be shares that are issued and later purchased back from shareholder’s or may not have been issued. These stocks are not traded actively, instead they are held for future financial needs.

Typical stock split

When a company determines that their stock prices have become too high for average shareholder’s to afford, they may consider a stock split. A good example of this type of stock is “Berkshire Hathaway Class A” (NYSE: BRK-A) stock which currently trades for more than $100,000 a share. If Berkshire were to decide to do a stock split, they could do a three for one split and the shares would then be worth more than $30,000 per share. However, the overall position for all existing shareholders would not change.