Best Tips for Growing Your Investment Even After Retiring
How can I grow my retirement savings? That is one of the most popular questions we get from our readers, and the answer is plain and simple: invest young and invest aggressively so that your savings can grow exponentially while you’re still on your monthly paycheck.
But what if you’re nearing retirement or have already retired? There are several ways to manage and grow your portfolio even after you stop working so that you continue to grow the nest egg throughout your golden age.
Take More Risks
Financial advisors will often warn you against investing in riskier assets once you approach your retirement age. But taking a completely conservative stance on your portfolio won’t allow your investments to grow as much as you expect them to.
So should you dump all your stocks once you turn 60? Not so soon. Stocks are traditionally preferred over bonds as they offer significantly higher returns – but they’re also a riskier asset class. However, the upside of the added risk is that you’ll be able to keep your savings high in case the value of your money is affected by inflation after retirement.
And since the average American lifespan is higher than it was a few decades ago, you should expect your retirement savings to be spread out over more years. According to a research, 25 per cent of the current retirees could live past the age of 90. This makes it even more important to take investment risks so that your portfolio continues to grow throughout the retirement.
Of course it isn’t advisable to go too aggressive and invest heavily in stocks because there is a risk of market fall that could give your nest egg a major setback. To minimize the risk losses, spread out your investments over a mix of stocks and bonds. A general rule of thumb is to choose a 40-60 investment strategy where you put 40 per cent of your savings in stocks and 60 per cent in bonds. If you a greater appetite for risk or expect to live over 90 years, a 50-50 ratio could be more reasonable for you.
Choose Stocks and Bonds that Offer Dividends
Making money from stocks can work in two different ways: you can either buy shares when prices are low and sell them off when the value goes up or keep the shares and earn dividends. Bonds also offer a similar structure where you can either sell them for a profit or retain them to collect interest.
Most bonds, except the zero coupon bonds, pay interest. On the other hand, not all stocks give their investors dividends. To protect your portfolio from market volatility after retirement, invest in companies that offer steady dividend payments. This income can help in offsetting losses in case you have to sell off your shares in a market downturn.
Retirement won’t exempt you from your tax obligations. If your retirement savings are held in a traditional brokerage account, the earnings are taxable during and after working years.
To bypass the tax bill, it’s advisable to invest in municipal bonds which are similar to corporate bonds in a way that they pay interest twice a year along with the bond value once the term ends. The interest you earn on bonds is exempt from federal taxes (and even local taxes if the bond is issued in your birth state).
Keep an Eye on Your Portfolio
You can’t just make an investment portfolio and forget about it. Experts recommend assessing your investments and rebalancing the portfolio once a year if one asset class is performing better than the others.
If you sell off some of the securities due to change in market conditions, you may need to readjust the amount of stocks and bonds in your portfolio to maintain your desired ratio. You don’t need to check your portfolio every month and try to readjust things too often. But it’s generally a good practice to monitor every six months with the help of a financial advisor.
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