Retirement planning can stress people even in the best times. In recent years, the investing world has become significantly more volatile. That has implications for your retirement. You should consider contacting a retirement planning advisor to discuss these three factors that are central to investing in a volatile environment.
Time to Retirement
How far you are from retiring makes a major difference in how worried you ought to be about volatility. Someone in their 20s has decades of financial investments ahead, and they should mostly see a volatile investing world as a place full of opportunities to buy the digs. A person in the 50s, though, needs to think about how a couple of missteps could set their plans back years or even blow things up.
Generally, the time between you and retirement dictates how cautious you ought to be. This doesn't mean you should find a turtle shell and live in it once you hit 50, but it does mean you should take some risk off the table. A retirement planning advisor will usually encourage someone in this situation who's heavily invested in the stock market, for example, to look into bonds, real estate, and annuities. These provide greater financial stability as you close in on retirement.
Excess concentration in any asset class is bad. Even if you're only investing money in the most trustworthy government bonds, you could be missing out on growth opportunities. Likewise, an excess concentration in speculative real estate could expose you to major risk if interest rates skyrocket.
A general rule is that you want a diverse investment portfolio. As happens with your diet, too much of any one thing is a risk to your portfolio's health. This doesn't mean you shouldn't overweigh certain asset classes opportunistically. If you think there's a chance to make money when stocks dip, you might go heavier with the higher-risk portion of your portfolio. However, you need to balance that with steadier assets, especially when the financial environment is volatile.
Even if you're retiring tomorrow, your focus should always be long-term. Someone who's 65 should be thinking about how to ensure their portfolio will still produce income when they turn 95.
Your long-term focus does change with time. A 25-year-old's long-term focus is likely to be on growth. They want to compound their returns by collecting risk premiums and reinvesting gains.
In both cases, don't freak out over short-term swings in the economy. Volatile times come and go, but steadiness is the winning play over decades. Contact a retirement planning advisor to learn more.Share
16 March 2023
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