We have a lot of storied images of retirement. Lazy days playing golf or sunning, plenty of time to read or take walks. Probably the last thing we imagine ourselves doing is sweating an investment portfolio.
Yet some retirement savers do just that. After decades of worrying about saving and investing enough to retire, they fall into a routine of daily checking. Lacking work to absorb the hours, they instead become part-time market watchers and, most dangerously, begin to trade their accounts.
Watching over your money is no sin. But getting emotional about it and making rash choices is truly a dangerous route. Too often, retirees become targets for scams, either online or through church groups and social venues, a type of operation known as an “affinity” scam.
Retirement investing should be easy, and you can choose to make it that way without much trouble. You need only to build a reasonable, income-oriented portfolio and to rebalance it from time to time.
As you get older, required minimum distributions (RMDs) will begin. Since you likely will pay taxes on Social Security income, taxable withdrawals due to RMDs might jack up your total tax bill.
Tax planning is exactly where you focus your time and interest in money. As for the portfolio, it can and should be as “on autopilot,” as it was during your working years.
A good, “easy” retirement portfolio likely contains the following asset classes:
If you have a very large balance, it can be easy to consider stocks as high risk and remove them entirely from the equation. Remember, though, that stocks tend to stand up well to inflation. If you are relatively young in retirement, you will need that power to safeguard purchasing power over the decades to come.
A lot of investors think they should own long-dated Treasurys and that’s it. The problem is that inflation might rise, hurting the value of the long-bond portfolio. Instead, own the total market, including shorter-duration U.S. debt and corporate debt.
3. Real estate
Real estate investment trusts (REITs) are income generators and can be a good alternative source of cash flow when bond rates are low, as they are now. Don’t go overboard, however. Unlike a bond, a REIT can lose market value just like a stock and can even wipe out your investment. Diversify to reduce this risk.
4. Foreign equities and debt
Most people avoid investing abroad. They consider it “unpatriotic” (which makes no sense, since U.S. companies own plenty of businesses overseas) or they find the issues of currency exchange confusing. Nevertheless, foreign stocks and bonds are likely to provide a better return than domestic opportunities, particularly if you own them through broadly held, inexpensive index funds.
Sounds crazy, right? But remember, while volatile, the price of real assets such as precious metals can move opposite to stocks and bonds. As such, commodities can actually lower volatility if held in small amounts and rebalanced regularly in a portfolio.
Retirement investing need not be a headache. A properly designed portfolio will do just that, allowing you to loll by the pool all you like.