RETIREMENT PLANNING: BE CALM, BE FLEXIBLE
If you find yourself too comfortable with your investment plan for retirement, it is high time to change that mindset and embrace flexibility. Here’s why.
Interest Rate Can Impact Investment Returns
People who save for retirement have placed their money in bonds, believing it is a safe way to grow their fund. Bonds counter the negative impact of stock decline. However, the strategy may no longer work due to the changing rate environment. When rates increase, the yield on a bond normally drops.
Presuming the Federal Reserve will implement further rate hikes, those who are willing to modify their strategy won’t be exposed to interest rate perils. At this rate, it is advisable to invest in short duration bonds with maturities of less than five years.
Portfolio Can Become Too Conservative or Risky
There’s an investment maxim which states the closer to retirement, the more risk averse they get. No one wants to experience another stock market downfall as they inch closer to their golden years. However, that saying only works with a shorter life expectancy.
Sticking to an old investment plan, which becomes too conservative as you age, can lead to a huge retirement mishap. And if investors uphold a traditional philosophy, they may fail to keep up with inflation. Hence, their buying power diminishes. On the other hand, being risky early on and not revisiting it for a long time can spell trouble as well. If your portfolio is mostly comprised of stocks, a stock plunge can wipe out some or all of your retirement savings.
Too Much Charges and Taxes
The amount you pay in taxes and fees depend on your investments, which can change over time. Being stiff can affect your investments, especially when Uncle Sam suddenly appears. Also, you won’t be able to maximize tax loss harvesting, one option of averting a capital gains hit as you offset the gains from one stocks with the losses from the other.
Investors could end up overpaying in charges if they set their investments and forget about it, not accounting their asset holdings. You won’t be able to figure out an increment in fees or other increases if you do not stay on top of your investments.
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