When picking retirement funds, it’s easy to get confused by the different options available. For many households, saving for the next month is difficult enough, let alone thinking further into the future. To enjoy a happy and financially stable retirement, however, it’s crucial to make the right investments.
Most Americans use a combination of bonds and stocks as part of their retirement portfolio. Younger individuals should steer towards stocks and, as they become older, rebalance the ratio back towards bonds, to maximize earnings. Doing this allows people to take a few more risks with stocks when in the early stages of savings, offering the potential for long-term gains. As retirement age approaches, though, taking out bonds can be a safer bet to preserve what you’ve already earned.
With most retirement plans sponsored by employers, like a 401(k), individuals are offered a set group of investments to choose from. To create the best portfolio, it is wise to choose options that have low costs attached, i.e. fund fees of less than 1 percent per year. Also, opting for a diverse variety of investments is the wisest choice.
The average investor should look at target-date funds. Due to their nature, these are the easiest investments to make and to leave running. These funds are diversified, have a proportionate ratio of bonds to stocks, and will automatically adjust through the years in relation to the desired retirement date. For individuals wanting to take a more hands-on approach, diversification and increased micro-management are key.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.
Photo ©iStockphoto.com/c-George