The 3 Most Important Pieces of Advice Every Baby Boomer Needs to Hear About Their Investment Portfolios Right Now

Finding good advice is one thing, but heeding what the experts lay out as the best way forward can be the most difficult part of implementing a long-term investing strategy. 

Indeed, there are about as many opinions as to what the “best path forward” is as there is a spectrum around the willingness for investors to adopt these advisory strategies into their own investing process. That said, in order for anyone to improve one’s own way of doing things, looking at what other successful investors have done (and the wisdom they espouse) is a great place to start.

In researching a number of top personal finance and investing experts on the topic of retirement investing, here are the three pieces of advice I’ve come across I think are most important for baby boomers to heed right now. 

Diversification and Risk Management Matter

Pie chart indicating a diversification strategy

For younger investors in the Gen Z or Millennial age groups, risk management matters. I’d argue that risk management matters for every age group, as losing a significant amount of one’s overall net worth can be as demoralizing as it is an overall setback to one’s financial goals.

That said, those 20-something investors out there that “lose everything” at the onset have plenty of time to make back those returns before they hit retirement age. And with more folks than ever now working into their 70s, a four-decade runway to improve one’s finances makes risk management less of a priority.

But for retirees and those nearing retirement, ensuring that one’s nest egg can’t get cut in half (or more) during downturns may be much more important than maximizing returns over the long-term. No one knows how long we’ll live, but as we approach retirement age, this uncertainty grows. Thus, capital preservation and diversification become very, very important.

I’d recommend baby boomers looking to improve their portfolio diversification and risk management processes consider low-cost diversified index funds with some component of quality within their portfolios. Additionally, some allocation to bonds, precious metals, and/or alternative assets can help soften the blow of any future recessions or steep selloffs we see take hold in the years to come. 

Reliable Income Streams Are Important

Visual showing dividend growth using gold coins

Alongside portfolio diversification and risk management, ensuring one has a reliable income stream outside of social security is becoming an increasingly important strategy for those nearing their golden years.

The social security trust fund is now expected to run out of capital in around 7-8 years, which isn’t fantastic for those expecting to receive social security benefits for two or three decades. And while Millennial and Generation Z workers will pay the tab directly from payroll deductions to cover this generation’s needs, it’s unclear just how long social security will around down the line.

Thus, for those who may be a few decades away from retirement, creating passive income streams for retirement may be just as important as for those folks who are nearing retirement. But having that extra peace of mind is helpful for anyone of any age, and it’s that extra layer of security I think is often overlooked (and undervalued) by many long-term investors.

For those seeking reliable passive income streams in retirement, considering a mix of dividend-paying stocks, bonds, and other fixed income assets (such as real estate and alternative assets) can be a great option. In my personal opinion, various dividend ETFs are the best way to go about creating such passive income streams, but to each their own. 

Flexibility In Planning for a Long-Lasting Retirement

An elderly couple, with a woman in a wheelchair

Again, no one knows how long they’ll live, and that’s the variable that’s hardest to estimate when it comes to determining how much one will need in retirement. 

That said, creating a curated budget suitable for one’s needs (healthcare costs continue to rise at a pace that’s faster than inflation), as well as the “wants” for retirees such as travel and leisure, is important. Knowing how much one will likely spend (with an estimate for how long) can help create a meaningful retirement that’s most enjoyable and sustainable. That’s what we’re all after.

As part of such a strategy, managing how much one expects to withdraw over time is important. I’m of the view that a 4% withdrawal rate is the safest option. And for those who completed step 2 and have a reasonable and reliable passive income stream, such a withdrawal strategy should work over the long-term. 

Every investor and soon-to-be retiree is different, so such a strategy will change depending on one’s personal spending goals and ambitions. As always, it’s worth it to talk to a financial advisor to put together a curated plan that works for one’s ultimate goals in retirement.