As you get older, it becomes more important than ever to avoid making mistakes when investing your money. After all, when you have to rely on your savings, you can’t afford big losses because you might not have time to rebuild your nest egg.
The good news is that if you’re aware of some common mistakes, it’s easier to avoid making them. In particular, there are three mistakes seniors should do everything possible to avoid.
1. Maintain poor asset allocation based on risk tolerance
As you age, it is especially important to ensure that you maintain good asset allocation you are therefore not exposed to a disproportionate risk of loss. But, you also don’t want to be so careful with your investments that you might run out of money because you can’t earn the returns you need to maintain your account balance.
That means it’s more important than ever to assess your risk tolerance and adjust your investments accordingly as you age. A personalized risk tolerance assessment is ideal for deciding on the right mix of investments. But if you don’t know how to do that, a simple shortcut is to subtract your age from 110 and put that percentage of your investment in the stock market.
You will also need to make sure to rebalance your portfolio regularly. Otherwise, if some investments perform much better than others, you could end up with too much of your portfolio invested in the worst performers. And if you don’t adjust your exposure to equities as you age, you could find yourself forced to sell at a loss after a crash rather than rely on other investments to prop you up until an inevitable recovery. occur.
2. Not diversifying your portfolio
It’s not just your risk tolerance that determines where your money should be invested. You also want to make sure you’re not putting all your eggs in one basket, especially as you get older and have less time to recover from big losses if something goes wrong.
To reduce your risk and maximize the chances of having the money to get you through the rest of your retirement, invest in different companies in different industries and in different asset classes. Never bet too big on any type of investment to perform well.
If you don’t know how build a diversified portfolio on your own, consider investing in exchange-traded funds (ETFs), including a S&P500 funds, as well as funds that offer exposure to emerging markets, real estate and bonds. ETFs are easy to invest in and can provide effortless diversification, especially since an S&P 500 fund will spread your money across a mix of 500 major companies in a wide variety of US industries.
3. Invest without liquid savings
Finally, you’ll want to make sure you have some of your money in a high-yield savings account. This is because retirees may face emergency expenses or tough economic times. If you don’t have money you can access without selling investments, you may be forced to lock in losses.
Ideally, you’ll have enough savings to cover your expenses for about two years in the event of a prolonged market downturn or a big surprise expense.
By avoiding these three mistakes, you can maximize the chances of being able to enjoy your retirement without too much financial worry, even much later in life, when money sometimes becomes more scarce if smart decisions have not been made early. .
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