How to Determine if You Have the Best Investment Portfolio for Retirement

Cash is an essential part of everyone’s finances, and plays an important role in saving and investment. In terms of investment risk, cash is also probably the most conservative option. While it is always prudent to hold on to some cash, given the rise in inflation rates cash will eventually lose nearly half of its value over a 20 year retirement. Long-term investors need more robust strategies to preserve the value of their savings. If you do keep some cash on hand, consider depositing it in high-interest savings account so you can benefit from the returns and have immediate access to it if needed.

Diversification is a must in any retirement investment portfolio. Diversification protects you from losing all of your assets if there is a change to one area of the market. The sharp decline in stock prices in recent years are proof enough that investing all of your money in one area is a risky strategy. Make sure your money is properly split not only in retirement accounts among stocks and bonds, but also spread out over stocks, cash, bonds, physical assets, and investments in other income-producing sources. By spreading out your assets, you can better hedge your bets against uncertainties in market fluctuations, inflation, income stream demise, and other economic factors beyond your control.

It is always a good idea to explore other investment alternatives like mutual funds and exchange traded funds that invest in commodities, real estate, and energy. These alternatives can typically achieve above-average returns and reduce risk because they are less likely to move in tandem with stocks and bonds. Many alternative investments also have high minimum investments and fee structures compared to mutual funds and ETFs. While they are subject to less regulation, they also have less opportunity to publish verifiable performance data and advertise to potential investors. Alternative investments are favored mainly because their returns have a low correlation with those of standard asset classes. Because of this, many large institutional funds such as pensions and private endowments have begun to allocate a small portion of their portfolios to alternative investments such as hedge funds.

You have probably entrusted the experience and expertise of a financial planner to guide and monitor your retirement funds, but do you know how your money is really doing? It is advisable to do an annual retirement account review to give you a chance to evaluate how your money is faring against expected results. This also represents an ideal time to make any adjustments as circumstances arise. You might discover your asset allocation seems off balanced, you may have less diversity than you think, your needs may have changed, or you could have been subjected to new tax rules.

You don’t know how long you’re going to live, of course, but it may help to know the average life expectancy of people your age. Many people underestimate their life expectancy because they do not realize it changes as they grow older. Realizing you are going to live longer means you can expand your investment horizon past the day of retirement. This means you can consider riskier assets like stocks, commodities, and alternatives. Your longevity will allow you to ride out market cycles in the long run, especially if you are starting your retirement investments early.