When you are putting together your retirement portfolio, you should be prepared for volatility. There is an inherent risk in the investments, but it is an inevitable part of investing for the long term.
If your portfolio underperforms your investment plan, you should start withdrawing less money. If volatility continues, you should reduce withdrawals to maintain your portfolio’s long-term value.
This article covers important topics you should know about. Continue reading to discover more retirement investment tips and strategies.
Dividend-Paying Stocks
One way to ensure a steady income stream in retirement is to invest in dividend-paying stocks. Dividend-paying stocks typically have certain characteristics that appeal to conservative investors. A steadily increasing dividend is usually indicative of a stable, profitable company.
Companies that pay dividends are also required to generate profits that are higher than their operating costs. This means that they are more likely to spend their cash wisely.
Moreover, dividend-paying stocks are often good choices for retirement investors because they filter out low-quality businesses, which can result in large losses in capital.
A well-diversified dividend-paying stock portfolio should be composed of dividend-paying stocks from a variety of sectors and company sizes. Without diversification, your retirement savings are at risk.
As dividends are paid by different companies, their payouts are subject to fluctuation. Despite a positive correlation between dividend payments and stock price, there is no guarantee that they will increase or decrease in value over time.
Income-Producing Real Estate
For people approaching retirement, income-producing real estate may be an excellent addition to their retirement portfolio. A rental property generates a monthly cash flow that can be used to cover the mortgage, taxes, and fees, and can help a retiree supplement his or her retirement income.
There are many ways to make rental property work for you. Buying a property with income-generating potential before retirement is the best way to secure a good location and the best rate of return.
Renting out an apartment or a vacation rental is a great way to generate income during retirement. An apartment can be rented out for a monthly fee, while a mountain cabin can be rented when not in use.
For a modest investment, consider buying an Airbnb rental or a vacation rental. A tax-deferred exchange is another option. If you are not comfortable managing a rental property, consider hiring a property manager.
Active vs. Passive Portfolio Management
When deciding between passive and active investment strategies for your retirement portfolio, keep in mind that passive investing typically means investing in a large number of funds.
These funds typically invest in hundreds or thousands of stocks and bonds. This diversification helps you reduce the risk of one investment going bad, which can sink your entire portfolio.
Active investment strategies, on the other hand, require you to research every single investment. Pop over to irainvesting.com to stay in the loop with the latest on gold investment IRAs.
For these reasons, you should have a financial advisor oversee your retirement portfolio and recommend the strategies that will provide the highest returns.
Although some academic studies have shown that active managers have outperformed passive funds, these studies have yet to prove whether they’re better at detecting a hidden diamond in the rough.
Active managers can identify these opportunities in niche markets, which are less liquid and therefore have fewer people watching.
For high net worth investors, the difference between passive and active strategies is not as clear. Many of these strategies can be accessed through a high-net-worth investment professional, but most of these investments are actively managed.
Asset Allocation
An appropriate asset allocation for a retirement portfolio should take a variety of factors into account, including the investor’s risk tolerance and the anticipated length of their retirement.
While investing in stocks, bonds, and other riskier assets during your early years of retirement may provide you with a higher income, you should avoid selling during a downturn.
Instead, keep a steady stream of income by leaning on fixed-income assets during times of market volatility. For investors approaching retirement, it’s important to realize that low volatility does not necessarily mean low risk.
Many people assume that stocks have more risk than bonds, but this is simply not true. Over a thirty-year period, stocks have outperformed bonds.
And while stock market gains can be volatile, bond prices will go up when interest rates fall. That’s a good thing for investors in their early years of retirement.
But if you aren’t sure what level of risk you’re comfortable with, consider the time frame before reducing your equities position.
