How to Diversify Your Retirement Investment Portfolio

When you think about investments, consider your portfolio the container that houses all your investments. You may have investments in a number of accounts, including your retirement accounts. Chances are you’ll start paying more attention to your accounts in the years leading up to your retirement. The funds in these accounts should provide you with the income you need to maintain your standard of living once you are no longer working.

If you’re investing or saving for retirement, make sure your portfolio has the following characteristics.


What Are Investment Portfolios?

A portfolio encompasses all of your investments in various accounts such as 401Ks and taxable brokerage accounts. Your IRA will also be included in your investment portfolio, whether you have an SEP, traditional, or Roth IRA, or want to invest in a Gold IRA to protect your investment against inflation. Certificates of Deposit (CDs), savings accounts, and money market accounts can also be part of your investment portfolio.

The accounts in your portfolio can hold various assets, including stocks and bonds, mutual funds, exchange-traded funds (ETFs), commodities, or real estate. Together, these accounts and the assets within them form your portfolio.

If you’re saving for retirement, a satisfactory portfolio should meet your financial needs for as long as you live. There are several characteristics your accounts should have to provide you with permanent financial security.

What You Should Know About Growth Stocks

Your retirement account is designed to increase over the years. Real estate and stocks can be used as tools to grow your retirement account, particularly when these instruments are developing and increasing in value. Keep in mind that at least part of your retirement savings grows quicker than the inflation rate so you can enhance your purchasing power.

According to data, stocks are the assets that yield the best return over time. Stocks grew by around 10% each year from 1926 to 2018. Bonds only grew around 5% and cash had a 3.5% boost during that time period. This is why your portfolio should focus on generating income and preserving capital to protect your investments against inflation.

Diversifying Your Portfolio

The type of diversification you choose to apply to your retirement portfolio will likely change the closer you get to retirement age. Early in your career, it may be acceptable to diversify with real estate or large, mid-, and small-cap funds and stocks.

As your career progresses in your 40s and 50s, you may want to consider moving some of your funds into other sectors such as preferred stock offerings or corporate bonds. These tools will still yield returns but are not as risky as pure equities.

You may also want to think about alternative investments such as derivatives, gas and oil leases, and precious metals that can reduce investment risks. When you invest in these ventures, you’ll likely be able to generate more appealing returns during times when traditional assets are not as active.

Keep in mind that your ideal portfolio will not rely too heavily on company stock shares that are inside or outside of your 401K. A significant decrease in value can affect your retirement plans if these shares make up a huge portion of your retirement savings.

Taking Risks with Your Portfolio

Once you’ve reached retirement age or are approaching this phase of your life, your tolerance for financial risks will likely change. The closer you get to access the money, the more you’ll likely want to concentrate on preserving your income and capital. If you need guaranteed principal or income, you may want to consider treasury securities, indexed and fixed annuities, and certificates of deposit (CDs).

Generally, your investment portfolio shouldn’t be fully invested in guaranteed financial instruments until you’re in your 80s or even 90s. A financially sound retirement portfolio will account for drawdown risks which assesses how long it will take you to financially recover from a huge portfolio loss.

Most people would say that a great retirement portfolio allows the owner to live comfortably once the portfolio holder is no longer working full time. Your investment portfolio should reflect your capital preservation, as well as your income and investment growth trends. When you know which aspects of your portfolio are most successful, you may better understand the risk of keeping or selling stock shares or investing in new financial accounts.

Your investment portfolio should include a mixture of developing accounts, capital preservation, and sources of income. You should also consider timeframes for your accounts so you’ll know when you can expect to cash in on your investment. The more you know about your investment portfolio, the more you can anticipate economic changes and keep your retirement funds protected for years to come.

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