Retirement Income Blog

Allocate Your Investments to Achieve Your Retirement Goals

Your retirement concerns may include income to live on, travel, gifting, and making bequests to heirs and charity. Which of these goals will you achieve and how? The value of your investments and their allocation among various investment categories suggest statistically what is realistic for you to achieve–but not what you will achieve.   The following retirement investment advice will bring your actual results closest to your potential.

Entering retirement is a good time to strategize on how to best allocate your resources to achieve what you can. Maintaining your strategy will keep you on track. Let’s review the basics of retirement investment advice.

Entering retirement at 55 to 65 years old gives statistically 20 or 30 years to live, based on current mortality rates. The best retirement investment advice we can provide is that you don’t plan for an early death.  Odds are, scientific advances may have you living 40 years in retirement. That is a long time period for a nest egg to last. But if you will need to live on part or all of your investments, then you better maintain them so they can provide you with income for the duration. If you have plenty of income from pensions and investments to live on, then any excess investments can be invested for long-term performance (e,g, higher risk). Deciding your situation on income and excess investment determines your allocation strategy.  To determine your personal spending needs, use the retirement planning calculator.

The fourfundamental investment categories are stocks, bonds, commodities and cash. They have their many renditions as mutual funds, ETFs, money markets, unit trusts, certificates of deposits, etc. that produce stock-like, bond-like, or cash-like performance. These four investment classes historically suggest fundamentally different statistical return and risk categories to choose from. Their historical performances determine what is realistic to expect for investment growth and at what risk.

The best retirement investment advice is to combine a mix of these four categories because they are inversely correlated.  When one is up, the other is down.  Currently, stocks are down, gold (a commodity) is up, bonds are even or rising and cash is great to own as you get ready to buy stocks cheap.

Stocks have historically had the highest returns over time, but the greatest risk. To gain these higher returns, investors need both the time and a willingness to ride out market downturns. This requires a long-term strategy (at minimum ten years and higher).  Since you have 20-30 years for your nest egg to last, you have plenty of time to make stocks work. Critical retirement investment advice:  if you’re investing in stocks for ten years, then stop looking at them everyday and watching CNBC!

Bonds are generally less volatile than stocks but offer more modest returns. Investors approaching a near term (six months to five years) need for income might increase their bond-type holding because of their reduced risk of loss. Do not include high-yield or junk bonds here and out retirement investment advice is to avoid high yield bods and choose stocks instead.

Cash and cash equivalents–such as savings deposits, certificates of deposit, treasure bills, money market deposit accounts, and money market funds–have almost no risk. But they are most vulnerable to inflation. Store only assets in this category for immediate (within six months) use.  Although retirees may have a preference for these “safe” low risk assets, their low return will increase the likelihood of depleting your assets early.  Sound retirement investment advice means that you MUST take some risks in order to have a sufficiently high portfolio return.

Retirees generally lean toward a lesser risk portfolio of investments because of their nearer term need for income. Typical percent allocation of a portfolio among stocks–bonds–cash category types is 40 – 40 - 20 or 20 – 60 - 20.   We urge you to read the Grangaard Strategy, a book that explains how to get higher returns without ever sacrificing your retirement income to stock market risk while having a significant portion of your income working in stocks.   To get retirement helpemploying this strategy, the author’s web site has a listing of trained advisors.

Lastly, you do not want to depend on one stock or one bond in each category. Companies can default or go under. Be sure to diversify your investments within each category (e.g. mutual funds, ETFs, etc). That is where all the various diversified funds and managed accounts come into play.  If it all makes you crazy, you may choose to annuitize your assets and get a safe lifetime income.  Consult the annuity calculators.

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