We recommend that you base your investing for retirement on a sound financial plan relying on the best retirement investments.
One thing investors of all ages fear is not having a good financial plan in place so they have enough retirement income to live on once they’ve stopped working. Looking for the best retirement investments, addressing this concern is usually a high priority for many of our Successful Investor Portfolio Management clients.
Four key factors to consider when investing for retirement
- How much you expect to save prior to retirement;
- The return you expect on your savings;
- How much of that return you’ll have left after taxes;
- How much retirement income you’ll need once you’ve left the workforce.
Our portfolio diversification approach gives you strong potential for long-term gains
If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.
For example, manufacturing stocks may suffer if raw-material prices rise, but in that case your Resources stocks will gain. Rising wages can put pressure on manufacturers, but your Consumer stocks should do better as workers spend more.
If borrowers can’t pay back their loans, your Finance stocks will suffer. But high default rates usually lead to lower interest rates, which push up the value of your Utilities stocks.
As part of their portfolio diversification strategy, most investors should have investments in most, if not all, of these five sectors. The proper proportions for you depend on your temperament and circumstances.
For example, conservative or income-seeking investors may want to emphasize utilities and Canadian banks in their portfolio diversification, because of these stocks’ high and generally secure dividends.
More aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks. For example, more aggressive investors could consider holding as much as, say, 25% to 30% of their portfolios in Resources.
However, you’ll want to spread your Resource holdings out among oil and gas, metals and other Resources stocks for diversification and exposure to a number of areas.
Stick with conservative estimates to account for unforeseen setbacks
As for the return you expect from investing for retirement, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume you can make money trading in bonds.
Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as 10%, or around 7.5% after inflation. Aim lower in your retirement planning — 5% a year, say — to allow for unforeseeable problems and setbacks.
Above all, it’s important to remember that while finances are important, the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well. Continue Reading…