3 retirement investing mistakes seniors should avoid | Smart Change: Personal Finance
As you get older, it becomes more important than ever to avoid making mistakes when investing your money. After all, when you need to rely on your savings, you cannot afford large losses as you may not have time to rebuild your nest.
The good news is that if you are aware of some common mistakes, it is easier to avoid making them. In particular, there are three mistakes that seniors should do their best to avoid.
1. Maintaining wrong allocation of assets based on risk tolerance
As you age, it is especially important to ensure that you maintain the correct distribution of assets so that you do not run the risk of losses. But you also don’t want to be so conservative in your investments that you risk running out of money because you can’t generate the returns you need to maintain your account balance.
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This means that it is more important than ever to assess your tolerance for risk and adjust your investments accordingly as you age. A personal assessment of risk tolerance is ideal for deciding on the appropriate investment mix. But if you don’t know how to do it, a simple shortcut is to subtract your age from 110 and put that percentage of your investment money into the stock market.
You will also need to make sure that you rebalance your portfolio regularly. Otherwise, if some investments perform much better than others, you may end up investing a lot of your portfolio in the underperformers. And if you don’t adjust your exposure to stocks as you get older, you may find yourself forced to sell at a loss after the crash rather than being able to count on other investments to back you up as you wait for an inevitable recovery to occur.
2. Failing to diversify your portfolio
It is not just your tolerance for risk that determines what you should invest your money in. You also want to make sure that you don’t put all your eggs in one basket, especially as you get older and have less time to recover from big losses if something goes wrong.
To reduce risk and maximize the chances of having the funds needed to see you through to the end of your retirement period, invest in different companies across different industries and in different asset classes. Never bet on any one type of investment that will perform well.
If you are not sure how to build a diversified portfolio on your own, consider investing in exchange-traded funds (ETFs), including Standard & Poor’s 500 Funds, as well as funds that provide exposure to emerging markets, real estate and bonds. ETFs are easy to invest in and can provide easy diversification, especially since the S&P 500 fund will spread your money to a mix of 500 large companies across a wide range of US industries.
3. Investing without saving liquid
Finally, you’ll want to make sure you have some of your money in a high-yield savings account. That’s because retirees may face emergency expenses or turbulent economic times. If you don’t have money that you can access without selling investments, you may have to reap losses.
Ideally, you’ll have enough savings to cover your costs for about two years in the event of a prolonged market downturn or a major sudden expense.
By avoiding these three mistakes, you can increase your chances of enjoying your retirement without too many financial worries – even later in life when money sometimes becomes scarcer if smart decisions aren’t made early on.
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