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Investing for your retirement

Investing for your retirement

Retired investors who were heavily invested in equities have had a particularly rough time the past two years with the world financial crisis taking it’s toll on the markets. So what have we learnt over this period about retirement investing strategies to see that retirement is not a stressful time in our lives.

Depending on your financial position at the time of retirement and assuming you have not taken early retirement, there are essentially three types of retired financial situations into which you are likely to fall. We will consider the four major investment types that your retirement portfolio will include and how these should be apportioned to cater for your retirement in the different situations. Cash, equities, property and bonds.

Wealthy individual who does not rely on investment income to provide for daily expenses and will probably leave a large chunk of money to your children or estate for distribution to your children. This situation allows you to invest more in equities and property which may have a higher risk allocation but of course the potential returns are greater. The portion invested in cash and bonds which are historically less risky. The key factor to consider would be if world markets moved negatively for a sustained period, that the impact would not effect on your day to day lifestyle. It may worry you that your investment portfolio and your legacy has reduced in value but you still have enough income to cater for your day to day needs quite comfortably in your retirement.

A person in a poor financial position needs a totally different retirement investments strategy which would include a much higher portion of capital investment in bonds and annuities and a far smaller portion, if anything at all in equities. In this situation, any negative movement in the stock market would also not impact negatively on your retirement income necessary to cater for your every day financial needs.

A person in a sound financial position with enough invested to cater for retirement and a little extra that could be invested in riskier investments always assuming that if you lost a significant portion of “the little extra” that you would still be able to cater for your retirement through the balance of your lower risk retirement investments. In this case, the “little extra” may be invested in equities with the possibility of a higher return than your income investments. Possibly the most important factor for retired investors if there does happen to be a negative correction in the markets, is not to panic, markets are volatile at the best of times and continuously move up and down. If you sell your equities there is absolutely no way for you to recoup your losses which is why the money used to invest in equities during your retirement should be money you can afford to lose. Hold onto the equities you have and if possible lower your median price per share by making additional investments as the price goes down, this will ensure that you recover your losses far quicker than normal but only do this if you have spare cash available.

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