When you’re in the process of growing wealth for retirement, it’s important to make sure you’re investing your money strategically. With the right approach, you could, for example, turn $100,000 into $1 million or more by the time retirement rolls around.
Once you’re actually retired, or getting close to that milestone, it’s important to manage your portfolio strategically. With that in mind, here are three investing mistakes that baby boomers should take steps to avoid.
1. Going too heavy on stocks
It’s a good idea to load up on stocks when you’re in the process of building up your nest egg. But if you’re close to retirement at this point, or retired already, you don’t want to have too large a percentage of your portfolio in the stock market. And the reason boils down to volatility.
It’s one thing to see your portfolio lose 15% to 20% of its value during a stock market crash when you’re in your 40s and you won’t be retiring for another two decades. In that situation, you have time to wait for the market to recover.
It’s another thing to see your portfolio take a huge nosedive when you’re in your 60s and are a year away from retiring, or when you’re an actual retiree who uses their portfolio for income already.
You can work with a financial advisor to figure out how much of your assets should be in the stock market. But you probably shouldn’t have 80% to 90% of your portfolio in stocks at this stage of life.
2. Not holding stocks at all
Some people might tell you to dump your stocks once you’re getting ready to retire because the market is so volatile. But just as you do not want to go too heavy on stocks, you also do not want to ditch stocks completely.
The nice thing about holding some stocks is that they can generate solid growth in your portfolio, allowing for larger withdrawals. Also, don’t forget that many stocks pay dividends, which is income you can use to cover various retirement expenses.
If you don’t have a very high tolerance for risk, it’s okay to limit the amount of stocks you hold. However, it’s generally a mistake to say no to stocks completely.
3. Forgetting about cash
When you set up an investment portfolio, it’s easy enough to leave cash out of the equation. But if you’re retired or close to it, it’s extremely important to have plenty of cash in your portfolio on top of stocks and bonds.
The nice thing about cash is that its value cannot change based on market conditions. If you have $50,000 in cash and you don’t take any of it out, that position can only grow as you earn interest on your money. And it’s important to have cash available in case the value of your stocks or bonds decline, and you can’t sell those for income you need.
Plus, even though cash may not generate the same return as stocks, if you’re strategic in opening CDs and finding high-yield savings account, you can earn something. And when interest rates are up, as is the case today, you can earn a pretty nice return on your cash.
Plus, having cash in your portfolio should give you peace of mind. That’s reason enough to include it.
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