Investing for retirement is important.
No matter what you do for a living, it is important to start planning for your retirement as soon as possible. The sooner you start saving for the future, the better off you will be when your golden years roll around. It is also critical to take a look at your retirement investment strategy from time to time and make any necessary adjustments. For instance, as you get closer to retirement you might want to pull some money out of riskier investments like stocks and move into safer vehicles like bank certificates of deposit and government bonds. Using a mixture of stocks and fixed income investments is often the best strategy, since you are likely to be spending many years in retirement, and the gains from equities can give you the best chance at beating inflation for the long haul.
Instructions
1. Gather up all of your statements from your investment accounts. It is important to get a sense of how your investments currently are structured. Add up all of your investments so you know how much you have to work with.
2. Separate your investments into fixed income and equities. Any holdings in stock mutual funds and individual stocks go into the equity pile, and certificates of deposit, bonds and money market funds go into the fixed income pile.
3. Add up your equities and fixed income investments, then divide each of those totals by the total of all of your investments. For instance, if the total portfolio value you found in Step 2 is $50,000 and you have $25,000 in equities, your equity ratio would be 50 percent. A spreadsheet can be a big help when doing your calculations.
4. Determine what your desired retirement investment strategy is, and compare that to your current asset allocation. Determine the dollar amount of your portfolio that should be invested in each category by multiplying your optimal percentage by the total of your portfolio. For instance, if your optimal stock market allocation is 25 percent, the total dollar amount devoted to stocks in a $50,000 portfolio would be $12,500. The basic rule of thumb is the closer you are to retirement, the more conservative your portfolio should be, but everyone's situation is different. If you are a few years away from retirement and you currently have 80 percent of your investments in stocks, scaling back those stock market investments to between 50 percent and 60 percent of your portfolio can reduce the risk that you will lose a large portion of your nest egg just when you need it most.
5. Contact the brokerage firm or bank holding the securities you need to sell to realign your retirement investment strategy. Direct the firm to sell enough equities or fixed income investments to bring your portfolio into the proper balance. For instance, if your optimal exposure to stocks is $12,500 but your current exposure is $25,000, you would want to sell $12,500 of your holdings and move that money into fixed income vehicles.
Tags: fixed income, your investments, your portfolio, fixed income investments, income investments