Diversifying Your Retirement Savings Portfolio
It’s natural to be worried about your retirement savings given today’s volatile market. With the economy recovering from what many financial experts say may be comparable to the Great Depression it’s important that you reevaluate your retirement budget and take greater control of your financial future.
Now is not the time to run and hide! No matter where you are on the retirement timeline, you may be wondering what to do.
Should you…
- Get out of the market altogether?
- Wait it out?
- Take advantage of low prices and start buying?
Before you make any major decisions, the first step is to make sure your retirement investments are diversified in your retirement portfolio.
Why Retirement Savings Diversification is Key
So how can you buffer your portfolio from market fluctuations? The answer lies in diversification. Simply put, diversification is building an investment portfolio based on a mix of asset classes, such as stocks for retirement, retirement bonds, cash, gold and real estate. The goal is to spread your risk out over a variety of investments to meet the goals of your retirement savings plan.
Diversification will not prevent losses in bad markets but, if done properly, it will help limit the damage to your retirement portfolio. It follows the basic rule of not putting all your eggs in one basket.
Of course, no two investors or retirement savings plans are exactly alike; therefore, no two diversification strategies will be exactly the same. Your retirement savings diversification strategy should be tailored to your individual risk/reward profile. A diversified portfolio also takes into account a number of variables including your age, your financial resources and your retirement objectives.
Setting Reasonable Expectations
It’s a fact of life that everything has its ups and downs, including the stock market.
What kind of market returns should you expect once the economy stabilizes? With a well-diversified portfolio, over the long term, you can generally expect returns that range from a conservative low of 3% to a more aggressive high of 11%. That’s what historically has been true; only time will tell what will happen going forward.
To take advantage of this potential recovery, it’s smart to revisit your retirement savings plan and adjust it accordingly.
10 Ways to Take Control of Your Retirement Savings Plan
- Look at your statements. Know how your retirement investments are performing.
- Assess your financial plan. Have your needs or your goals changed?
- Adjust your expectations to fit historic market returns.
- Assess the risk you are willing to assume, especially given today’s uncertain market.
- Rebalance your retirement portfolioretirement to properly build in diversification.
- Consider taking losses to offset some of your tax liability.
- Acknowledge that retirement may be a little further out on the time horizon than previously planned.
- Adjust your retirement expectations if needed. Retirement doesn’t mean you have to stop working, it could mean working at something you always wanted to do.
- Review your retirement savings plan at least once a year.
- Consider using a financial planner to help you in the decision making process. A financial planner can be a valuable resource while helping you stay disciplined to achieve your long-term financial goals.
There’s tremendous opportunity to increase – or rebuild – your retirement savings if you have the patience and discipline to stick to your retirement savings plan.
I especially appreciate the list I can use to make sure my retirement savings plan is in order. Thanks!