By the time you’re in your 50s and 60s, you’ve likely been saving for decades, and may be well on your way to a secure retirement. But don’t get too comfortable—now is not the time to take your eye off the ball. Maintaining the right blend of investments will help keep the momentum going in your portfolio while also reducing investment risks as you get closer to your gold-watch moment.
“No matter what you do, you should have a plan,” says Thomas Schneeweis, emeritus professor of finance at the University of Massachusetts-Amherst. “When you think about the future, remember that you need to keep growing your savings while also protecting what you’ve already accumulated.”
Continue to pursue growth. As retirement draws near, you may be tempted to shift into capital preservation mode, with a portfolio that emphasizes the stability of bonds or the safety of insured CDs. After all, with fewer years of working (and saving) in front of you, you may grow more nervous about market declines, even short-term drops. That said, it’s still critical to keep some stocks in your portfolio to take advantage of their inflation-beating growth potential. After all, you may need to fund a retirement that lasts three decades or more. For this stage of your life, opt for an asset allocation plan that is tilted toward stocks while also including a substantial investment in bonds.
Keep it diverse. When you divvy up your savings, make sure not to put all of your nest egg in one basket. Broadly speaking, stock and bond prices tend to move in opposite directions. Investing all your money in one type of asset makes your portfolio more vulnerable if that type of investment trends lower. By opting for a mix of investment types—stocks, bonds, real estate and cash, for example—you can chart a smoother ride through choppy markets. Even within investment categories, it’s worth keeping a diversified portfolio of different kinds of stocks and bonds. That way your risks are reduced no matter how the market moves.
Think about risk. No matter what your portfolio looks like, it should take into account your appetite for risk. Some people have a harder time coping with declines in the stock or bond markets. If you’re the type to lose sleep over financial fluctuations, consider allocating more of your nest egg to cash, high-quality bonds and U.S. Treasury instruments. But know that you’ll probably have to increase your savings rate to make up for the slower growth you can expect from conservative investments. This is especially important for older investors, says Schneeweis: “Because you’re going to be earning less, you need to focus on protecting what you already have.”
Outsource your portfolio. If the idea of building and maintaining a portfolio sounds like a chore, consider a target-date fund. These investments are set up to automatically become more conservative over time. In other words, target-date funds let you outsource the task of reviewing and resetting your investment allocations. For some people, having a trusted professional take over this task is more valuable than the control gained by managing a portfolio by yourself. Consult a SunTrust financial advisor for helping choosing the approach that’s right for you.