Spreading Risk in Retirement Investments

retirementToday, people of working age face a bigger challenge in planning their retirement than at any time in the past. If you’re anywhere between 25 and 55, the way you invest your retirement savings could make the difference between financial security and money problems in old age – here are some ways you can spread your investment risk and come out on top.

Live long, die broke?

One of the reasons why retirement planning is so important for this generation is that we will live longer on average than any other in  history. The average life expectancy in developed populations has been edging up over the past 50 years, with many people living well into their 80s and even their early 90s today.

For someone who retires at 65, this could mean up to 30 years of life after they stop working – this extended lifespan has great benefits, but also requires careful planning to ensure that financial worries don’t creep in during the later years when working is nearly impossible.

Investing – the retirement fund landscape

The economic uncertainty that has set in since the 2008 financial crisis has had a very real effect on retirement investments – they’ve been growing slowly.

While funds that invest in higher-risk shares have performed quite well over the past five years, retirement funds have had to settle for low growth in order to avoid risk – is it possible to grow your retirement capital at a healthy rate while controlling your risk? Here are a few strategies to bear in mind.

Spread your risk over different asset classes

  • The traditional approach to retirement investing is to spread your risk, investing in different types of assets instead of putting all your capital in one place – “don’t put all your eggs in one basket” is a good way of summing up this strategy.
  • Stocks, bonds, and cash are the three asset classes that have stood the test of time when it comes to retirement investments.
  • In a normal economy, these three assets usually perform in different ways when interest rates rise and fall – for example, higher interest rates may result in slower growth on the stock market but higher returns on cash and bonds.

Investors who are planning their retirement in today’s less stable economy, where interest rates in many countries are close to zero, may need to rethink their exposure to cash and bonds, opting for a larger mix of shares or even gold. Speak to your financial advisor for in-depth advice on planning your retirement portfolio.

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