Stocks for Retirement
Stocks for Retirement: Risk and Recovery
The last few years have been tough on stocks for retirement. In 2008 and 2009, the market saw startling losses, and no one knows how long a recovery to 2007 levels will take. Even target-date retirement mutual funds for people planning to retire in 2010 – designed to provide a “glide path” for their stocks for retirement – lost 25 percent of their value last year.
But the market is slowly recovering, and as the economy improves, stocks will lead the way, just as they led the collapse. Investing in stocks for retirement will still be part of many people’s retirement portfolio plans.
To be realistic about retirement investing in stock for retirement there are a number of risks that need to be taken into account, not all of them connected directly to stocks. In terms of the stock market itself, the steepest is short-term market risk, a risk made painfully apparent by the losses of recent years. Asset-class and industry risk are also issues for potential investors; even the best advisors on what retirement assets, industries and companies to back can get it wrong.
Other risks, which may make the risks of the stock market worth facing, are the risks surrounding longevity and inflation. To face these risks, your retirement portfolio needs to make some investment in growth.
Stocks for Retirement: The Need for Growth
First, longevity. Current and future retirees are living longer, often much longer, than their parents did. This opens up a longer a retirement, and with that, the risk of outliving your retirement assets. To stretch your retirement income plan across the extra years you may be retired, your retirement portfolio may need to keep growing after your retirement. There are many strategies around supplemental retirement income, and one of them is having stocks in retirement.
Another risk is inflation. The federal deficit is now a larger percentage of economic activity than at any time since World War II, and so inflation is likely to be an ongoing issue. To maintain your standard of living through the years of retirement, your retirement assets will likely need to keep growing, which is where stocks come in. To make the most of the opportunities for growth stocks in retirement offer, while minimizing their risks, you’ll need to be strategic.
Strategize Around Choosing Stocks for Retirement
If you’re going to enter the risky world of stocks, make sure you’re doing your research, or are getting advice from someone whose track record you’ve investigated thoroughly. Think carefully about how much growth – and, therefore, risk – you actually need to get the retirement income you’re projecting. Not all stocks carry equal risk – non-cyclical businesses (say, cleaning supplies), may not burn up the market, but are safer, steadier stocks for retirement.
Even if someone else is calling the shots on your retirement portfolio, stay actively involved, and make sure that your stock purchases are being made from a dynamic, tactical approach to the market. Don’t let anyone tell you there aren’t risks to investing in stocks for retirement, so make sure the risk is worth it. See our sections on retirement income, retirement budgets, retirement spending and portfolios to get help thinking through what balance of growth and risk is necessary to your retirement plans.
