You'll need to adjust many parts of your life as you near retirement. It may be time to downsize into a smaller home, or present you with the opportunity to start your own business. No matter what you hope to accomplish after leaving the workforce, it represents a serious change to your lifestyle. With that in mind, you need to consider how your investment strategy should change as you move toward retirement. What worked for you early in life might be counterproductive once you leave the workforce.
Why you need to adjust your investing style
As you near retirement, protecting your current savings becomes more important than ever. Investing in riskier assets can be a great way to grow your nest egg when you are young, but these assets can lose value as quickly as they gain it.
While you can recover from market volatility by waiting out any unexpected dips, you may not have the luxury of time as you enter retirement. That makes it especially important to consolidate the savings you have and preserve them so you'll be able to remain above water when you live on a fixed income.
With that in mind, it's best to remove riskier investments from your portfolio, according to financial advice website Five Cent Nickel. The majority of your investment should be in fixed-income securities that will provide stable returns.
If you plan to engage in activities that could increase your short-term expenses, like taking trips abroad, it may be wise to put around 10 percent of your money into growth investments that could help you make up for extra expenditures. You only want to take this path if you are financially stable without that money, however.
Where should your money go?
Any money you want to invest should go into lower-risk investments that offer consistent yields. There are several possible options, but mutual funds and bonds stand out as particularly promising, according to financial research firm Zacks. When you purchase a bond, you essentially give a bank or government organization a loan. They repay over time with interest, so bonds offer regular, if limited, returns. That's good news for retirees who need to carefully budget around a fixed income.
Mutual funds allow retirees to benefit from the movement of the stock market without managing a portfolio of stocks directly. A mutual fund allows investors to put their money into a managed portfolio of stocks that are managed to either provide consistent returns or aggressive gains.