Balancing the Perfect Retirement Portfolio

Mon, Apr 16, 2012

Financial Advice, Investment

Planning for retirement can be tricky. First, you have to ensure you are saving enough money to live on comfortably in your non-working years. Second, you have to determine how that money is best saved. Retirement accounts are great, but you don’t want all of your savings in a retirement account. Many adults worry that their portfolio is too heavy in stocks, CDs or some other type of asset. These assets will affect liquidity, risk, growth and income potential. So paying attention to how your money is being saved is critical. While balancing the perfect retirement portfolio can be tricky, it is not impossible.

Income
As you near your retirement years, you should carefully consider how your assets will work for you to produce income. Some assets, such as real estate or dividend stocks, may produce more income for you than a low interest rate savings account. Consider how much income you want your assets to create for you by preparing a budget. Then consider repositioning your assets so they provide you with this income stream.

Growth and Preservation
While income is perhaps one of the most important aspects of creating a retirement portfolio that works for you, growth and preservation of capital are critical. A great retirement portfolio may is one that has sufficient balances to provide you with the required income you need, but that also can support itself with preservation and hopefully growth.

For example, stocks may provide dividends for income, but their balance will grow regularly with time. Real estate may increase in value as property values increase. Rents may also increase in this way, providing increased income. These are examples of how assets may grow in value while producing income, negating the need for a retiree to use the actual capital to live on.

Risk
Every type of asset has some time of risk involved. The lowest risk assets are often the lowest yield investments. However, to minimize the risk that your portfolio may significantly devalue if the stock market, real estate market or other similar market crashes, it is beneficial to minimize risk by maintaining at least a portion of your portfolio in lower risk assets. You can research higher interest savings accounts and CD interest rates to ensure even these safer investments grow for you.

The ideal portfolio is one that will minimize risk. Further, capital will be preserved and even grow with time while providing you with an ideal level of income to live off of.

This Guest Post was written by Samantha Peters, a regular contributor on Paid Twice where she writes about topics relating to personal finance, ways to save money, and minimize debt.

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