Just as parents worry about their children, investors worry about their retirement portfolios. One way to help reduce your investment worries is by allocating your retirement portfolio in a variety of asset classes. Owning a variety of securities in different assets classes helps protect you from large value declines in the event that one asset class performs poorly.
Professionally-designed asset allocation programs can help you find the mix of stock and bond investments that work together most efficiently to achieve the highest return possible at a risk level youre comfortable with. And, while a professionally managed process of asset allocation cannot guarantee a profit, it is a way for investors to increase potential returns and reduce risk.
Understanding the Role of Stocks in a Retirement Portfolio
Stock investments are generally necessary to grow capital, which impacts your standard of living now and in retirement. The growth of capital is a source for higher income in retirement and can help make possible a stable, and potentially rising standard of living.
Inflation is a risk from which you need to protect your financial assets. Over the short-term, rising prices may go unnoticed. But over a decade or two, the impact can be significant. Assuming an average annual inflation rate of 5%, the purchasing power of $1 will shrink to about 38 cents over a period of 20 years. Historically, a diversified portfolio of stocks has provided investors an effective method to beat inflation over time.
Though stocks may present greater short-term volatility than bonds, over longer time periods, the additional risk of owning stocks has been much lower. Time increases the likelihood of investment success.
Finding the Investment Mix Thats Right for You
Allocating your assets correctly can be critical to the success of your retirement portfolio. To make this determination you need to closely consider three things:
- Analyze your retirement income cash flowlearn which expenses are “needs” and which are “wants”
- Identify your tolerance for risk–find the mix of stocks and bonds with which you are comfortable
- Evaluate your portfoliolearn if your investments can meet your retirement income needs
An investment professional can help you with these three steps by performing a thorough financial review. Once the review is complete, the professional can make a recommendation on the best allocation of your investment portfolio.
So stop worrying, and contact your investment professional today. He or she can help make certain your portfolio is allocated appropriately to ensure a long and successful retirement!
Post Views: 882
