You have a different mindset towards your investments in retirement than you did during your working years. Back then, you built your investment portfolio based on whether you felt comfortable with conservative, moderate, or aggressive risk. Now that you are no longer actively contributing, you probably feel more concerned with achieving consistent performance rather than taking risks to find funds with the greatest payouts. If you feel ready to embrace this approach, we offer some tips for doing so below.
Avoid Risk or Only Take Calculated Risks
There’s nothing wrong with feeling risk-averse in retirement. You can better anticipate your income by only selecting investment options that you know are safe and steady. However, you should feel comfortable knowing that you will need to accept a lower rate of return in exchange for the guaranteed income.
Another thing you can do is set aside money that would be immediately available to you in a crisis such as a recession or medical emergency. While the return on your emergency fund will be low compared to traditional investments, you have the peace of mind of knowing the money is there when you need it. You may want to consider setting up your emergency fund before any other type of investment. It is especially critical right now with the country in the middle of the coronavirus pandemic.
Taking calculated risks requires you to have some cash on hand as well as a good sense of knowing when to act and when not to act. It also means you have to set aside emotion and approach your retirement investments with common sense and the willingness to invest time into research.
One tool that can help you make better calculated risks is the price to earnings ratio. This helps you determine if the stock or other investment is currently undervalued, overvalued, or priced just right. Now that the country has officially entered a recession, studying the yield curve can help to make your portfolio more stable. Some low-risk investments that other retirees have selected include annuities and certificates of deposit among many others.
Diversify as Much as Possible
While diversification has always been a standard investment recommendation, it often becomes even more important in retirement. With the current crisis, for example, retirees who invested only in the travel industry or real estate might find themselves anxious about the future. Diversification can prevent catastrophic results from investing in only one industry.
Asset allocation can provide better protection of your retirement income, but it’s not entirely without risk. The same portfolio can return excellent yield in a strong economy yet provide little if any returns during a recession. Meeting with a certified financial planner is a good move whether you are still working or have enjoyed retirement for a while.
Aura Wealth Advisors is Here for You in Any Economy
We understand that the economy looks very uncertain right now due to the coronavirus pandemic. Even so, we urge you not to feel anxious or discouraged. Our team is here to provide you with personalized service and recommendations regardless of your situation or the economy. Please contact us today to schedule an appointment.