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Diversifying Your Portfolio with Retirement in Mind

Retirement planning has changed since your parents and grandparents were saving for their post-work years. As the average life expectancy and the cost of living continue to increase, today’s retirees are finding that they needed more savings than they previously expected. Traditional saving methods are, of course, helpful, but you might need an additional boost to save for a comfortable retirement. Diversifying your portfolio could be the boost you need. 

You might need more than you think, and diversification could help you get there.

People are living longer, and that’s affecting how much they need to save for retirement. It’s no secret that dying is an uncomfortable topic, so it’s not often that people want to think about when they will die. Though it’s not a fun conversation, the reality is that the longer you live, the more money you’ll need in your retirement savings. So, having a general idea of how long you might live will help you project your savings needs.

To help you calculate your potential lifespan, the Social Security Administration provides a life expectancy calculator. Consider the number of years that you’ll need to save for and factor in inflation to get a better idea of how much to save for retirement.

With the right strategy, diversification can help you to build and protect your savings.

Diversification is a buzzword in the investment industry that deserves all the attention it gets. Your investment strategy can have a significant impact on the amount that you have to live on once you leave the workforce. Consider your dream retirement scenario. Are you moving to a new city? Taking frequent vacations? Picking up a new hobby? Whatever your plans, diversification may increase your potential to reach that goal, beyond traditional (and more passive) saving strategies. Your advisor plays an important role in planning your diversification, but there are a few things that you can do on your own that may increase your earning potential. 

Diversify the types of stock you are investing in.

Imagine for a second that every stock you own is rooted in the automotive industry. Now imagine that a major event happens that plummets the auto industry’s revenue, sending the entirety of your stock portfolio spiraling downward. For this reason, you’ll want to ensure that the stocks you’re investing in are varied so that, if one falters, the others are less likely to follow suit.

Diversify between stocks and bonds.

Choosing a selection of both stocks and bonds helps to balance your risk. Stocks can be more unpredictable than bonds, so the more bonds in your portfolio generally means less risk. Your appropriate ratio of stocks to bonds depends on a variety of factors, such as your age, life expectancy, income, etc.

One rule of thumb to consider is to use their age as a rough guide for their portfolio risk. In this case, you would correlate your age with the number of bonds you held. For example, if you were 40 years old, 40% of your portfolio would be in bonds. That number would grow as you age, reducing your risk steadily until you retire.

Diversify in other areas, too.

Diversification isn’t all stocks and bonds. There are other ways to vary your portfolio that some don’t consider, such as real estate investments. Of course, these types of investments are best when held by more industry-savvy people, but consider, overall, that you can think outside of the box.

Your advisor can help you diversify your way to your dream retirement.

Diversifying a portfolio is an easier task when you have an advisor on your side. Not to mention that diverse portfolios may be more difficult to manage on your own. To have someone to lean on and guide you through this process, contact an advisor near you who can listen to your goals and help you achieve them through sensible strategies. 

Ready to boost your retirement strategy with expert diversification? Contact us today to schedule a consultation.

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