Daily Gains Letter

Two Ways to Decrease Risk and Increase Retirement Income

By for Daily Gains Letter |

DL_John_1If you’re waiting for times of economic peace before you reconsider your retirement investment strategy, don’t hold your breath. When it comes to the economy and the markets, things are never certain.

There always has been, and always will be, overarching issues that impact the markets and investor sentiment; whether it’s high unemployment, rising inflation, a slowing economy, fiscal cliff-type scenarios, geopolitical tensions, or general economic malaise. Even when the markets are bullish, and the economy is chugging along, there will be those who hold off thinking about retirement investing, because they’re not sure how much longer the good times are going to last.

In other words, uncertainty is always present…and, will always put some sort of dent in investor confidence.

With this in mind, where should you look to invest when it comes to maximizing your retirement income? That depends on what kind of investor you are, and how far away you are from retirement.

How Do You Plan on Investing for Your Retirement?

Investors worried about the way economic and political uncertainty impacts their retirement investments are often looking for ways to outguess the markets, and they move their investments around accordingly.

If it were easy to outguess the markets, everyone would be doing it. The fact of the matter is that it’s impossible to predict how unpredictable investors react to unpredictable events.

The best thing an investor can do when setting out a retirement strategy is to look beyond the horizon. Create an investing portfolio that allows you to take advantage of long-term growth on the stock market, while hedging against downturns with high-yield bonds and equity funds.

Staying the course amidst the chaos will lead to more sustained growth than shuffling your retirement investments around at the first sign of fluctuating economic doom and gloom.

There are numerous ways investors can increase their retirement savings while decreasing their risk levels. You could look into funds with good long-term records and a diverse mix of assets. Equity funds and broad bonds can provide both income and diversification.

If you really want to try and outguess the market, you could look into funds that invest in both bonds and stocks. Here, it’s up to fund managers to shift their holdings according to market conditions. All-in-one funds are a great way to diversify your investment strategy, decrease risk, and increase income.

The one thing you want to ensure is that your retirement investment strategy is not too focused. Just like the stock market in general, it’s better to be diversified than hold your all of your retirement eggs in one basket.

Are You Sprinting or Walking to Your Retirement?

The old adage for allocating funds between stocks and bonds holds that you should keep a percentage of stocks equal to 100 minus your age. If you are 35, a conventional financial planner would tell you to put 65% in stocks and 35% in bonds. If you are 60, they would tell you to put 40% in stocks and 60% in bonds.

Telling investors looking to build a retirement nest egg to park a good chunk of their savings in stocks might be a tough sell in these economic times. The buy-and-hold strategy of investing has come under fire as of late—and for good reason.

Between 1980 and 2000, the S&P 500 climbed approximately 1100%. If you had purchased the S&P 500 at its height in 2000, you wouldn’t have made any money. Toss in inflation, the cost of parking your money for that long, and the emotional stress of the economic downturn, and you’re worse off.

Are those who are planning for a comfortable retirement really willing to wait another 10, 20, or even 30 years to see if their investment pays off?

Treasuries are a tough sell too, right now. Twenty-year Treasury bonds have a 2.36% interest rate; 10-year Treasuries are at 1.62%.

Where can investors looking to build their retirement nest egg turn to increase their income and decrease risk?

To protect yourself from a protracted economic downturn, you could look into income funds with mixed asset allocations. There are funds that own bonds, stocks, and other assets that generate solid income.

The BlackRock Multi-Asset Income Fund is a broad-based fund aimed at investors with a low-risk tolerance who are nearing retirement. The fund yields 4.8%, and it has about 60% of its portfolio in bonds and 30.0% in domestic and international stocks.

Exchange-traded funds (ETFs) are another way to generate solid, dependable yields. The broad-based SPDR SSgA Income Allocation ETF is a fund of other funds. The fund has about 43.0% in stocks and 33.0% in bonds. It yields about 4.7%.

There is no way to take the risk and stress out of investing for your retirement. But, there are a number of avenues you can look into that can help reduce risk and increase income. And, help make your golden years a little more relaxing.

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