Consider your circumstances well before investing in stocks

December 5, 2012

Investing in stocks is a good option when you’re approaching retirement. The amount of money that you should invest depends on several factors. In other words, there is no specific answer to this question. As per experts, retirement portfolios are never complete without stocks. It is important that you adjust your portfolio with time so as to make it ready for your retirement. The idea is to save money as well as to ensure financial security during the retirement years.

Forget rules and believe in circumstances

You’re very likely to come across various opinions when it comes to preparing your retirement portfolio. One way, as most of the financial advisers put it, is to subtract your age from 100. The result you get is the percentage that you should invest in stocks while preparing your retirement portfolio. For example, a 50 years old person should invest 50 percent in stocks. Remember, this is no hard and fast rule. The increase in life expectancies suggests that people should be inclined towards investing more in stocks irrespective of their ages. The more you invest in stocks, the better the security you get in the years to come. 

Equities have started to play important roles in a portfolio. Higher investment in equities is going to help you meet the financial challenges that you’re likely to face during those long retirement years.

Allocate your assets well

You have to do the right asset allocation if you want better returns from your portfolio. Now, doing the right asset allocation involves diversifying your investments across various asset categories. This will reduce the portfolio risk and ensure higher returns at the same time. You have to start well with allocating assets in order to give the right shape to your portfolio. Some academic studies reveal that investment in stocks is responsible for almost 90 percent of the returns. 

The appropriate asset allocation largely depends on the circumstances. There are factors like time horizon and risk tolerance that have major roles to play in this. You’ll also have to take your personal goals into account. 

Don’t invest more than you can afford to lose

Sometimes, it is right to take the professional approach. If you have invested in retirement funds of major companies, you’ll see your glide path (shifting mix of equities, bonds, and other holdings) change as you age and approach retirement.

There is no point in having your mind set on a particular rule when you’re thinking of investment. Take your age, net worth and risk tolerance into account while investing. Make sure you’re not investing any more than you can afford to lose. It is always better to keep your investments within limits. Being overly cautious about investing money is going to help you control your investments and make a proper retirement portfolio. It is always better if you get in touch with a good financial advisor if you’re unsure about your investments. This way you can count on the investments you make and ensure a better future for yourself.

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