For many people, retirement means the end of their earning period.
For these retirees, having a stable and well-diversified portfolio that provides them with a source of income even after their retirement is very essential. This would also go a long way in helping keep the tax liabilities at bay.
People, to this day, are found lacking in knowledge when it comes to building such portfolios that would bring them a stable source of income for the rest of their lives after retiring at an age of between 55 and 60 years.
Here are five prudent ways for you as a retired individual to build your investment portfolio and provide for all your financial needs and wants post-retirement.
Invest in retirement income funds
A retirement income fund is a mutual fund for retirees designed to provide a relatively consistent income source along with a potential for capital growth.
Fund managers usually allocate a substantial part of the fund to equities with a focus on generating dividends. In addition, the fund may also invest in fixed income assets to earn a stable interest income.
Buy immediate annuities
If you have sufficient funds to retire, and want to ensure you don’t over-spend on things you don’t really need or put the money away in high-risk assets, you should consider buying immediate annuities.
This is a type of insurance that will generate fixed income for your retirement. You will have to give a lump sum amount of the annuity provider in return for periodic annuity payments that will start coming in right after your invest.
Use bond laddering
A bond ladder combines fixed-income securities, such as CDs and bonds to preserve your capital and provide a stable income once you retire. To apply a bond laddering, you will have to buy bonds (and not bond funds) in a way that the bond maturity dates are staggered over a period of time.
With this approach, you are buying assets that will provide you funds at specified dates to cover your anticipated future expenses, while also generating yield.
Adopt a style of growth investing
Growth investing refers to investing in instruments such as stocks and real estate that grow in value over long periods of time. These instruments are considered an essential part of what generally forms a well-diversified retirement portfolio.
Over the years, it has been proven through several studies that stocks provide the best returns by far. They have an average growth rate of about 10.1 percent every year, whereas, assets such as bonds yield only about half of this rate.
It is vital that your retirement savings grow faster than the rate of inflation in order to increase your purchasing power.
Therefore, it is necessary for all retirement portfolios to maintain a percentage of equity holdings in order to ensure the growth of their investments and have a hedge against inflation.
Make sure your portfolio is diversified
The ways in which you need to diversify your portfolio when you are retired or are about to retire will be very different from when you were a youngster in your twenties or thirties.
You will need to build a portfolio consisting of investments mostly in the conservative sectors.
These include bonds, stock offerings, and other instruments that provide decent value over longer periods of time.
You can also move to investments such as precious metals such as gold and silver, oil, and gas leases, in order to reduce the volatility of your portfolio.
A key to building a solid retirement portfolio is to minimize or shift from risky investments as they can cause sudden drops in the value of your portfolio, having the potential of drastically changing your retirement plans and probably even forcing you to come out of retirement to work again.