As you approach retirement, there are plenty of questions top of mind. One of those may be, “how should I invest within my retirement portfolio?”

We need to ensure that your assets provide a lifestyle-sustaining income that rises above inflation. Ideally, I would like to see my money last from my retirement age through age 100, god willing (if I’m a vegetable before that, you know what to do…)

 

How do you craft a retirement portfolio that balances growth, stability, and longevity?

Here are a few things to keep in mind:

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1.) Risk Management:

A common theme when reviewing portfolios is individuals tend to not know how much risk they are taking on, or they have ditched stocks completely to “secure the nest egg”. Yes, stocks have historically outperformed almost all other asset classes over the long-term. But a high allocation to stocks comes with higher volatility and downside risk.

Many people screw up their goals by taking on too much risk. We experience an extended downturn in the market early on in retirement, their assets decline 20%-40%, all hell breaks loose. Maybe you were able to withstand those declines in your 30s and 40s, but how about you 50s, 60s, 70s?

 

For many, it makes sense to have a major shift in strategy from aggressive growth, to wealth preservation/conservative growth. If I only need an investment return of 5% per year on average to hit my goals, then why take on more risk than that?

 

2.) What Are We Building?

We’ve discussed asset allocation and asset location before. Once you’ve identified what you own, try and match your investment strategy with the actual liabilities you expect in retirement. Remember funding life’s buckets?

 

Trying to live off dividend-paying stocks, bonds, and real estate investment trusts (REITs) alone? Keep in mind that it’s not uncommon for companies to slash their dividends during hard times, so your income could fall 20% in a given year depending on the economy.

 

Maybe you aren’t comfortable investing a large amount of money in stocks once you are done working. But it’s essential to maintain exposure to growth assets for long-term wealth accumulation. Stock funds offer the potential for capital appreciation and inflation protection over the long term.

 

So what might a portfolio look like for someone with $2 million who just retired?

 

  • Short-term bucket: $150,000 – $200,000 divided amongst checking account, high-yield savings account, short-term Treasury bills, money markets, or CDs. This helps cover living expenses and may serve as an “opportunity fund”.
  • Medium-term bucket: $750,000 – $1,000,000 in a balanced portfolio, mix of stocks and bonds. This portion of the portfolio can be tapped into at any time, offering a balance between growth and safety. Ideally, one of the accounts you utilize is a brokerage account to help provide tax-diversification.
  • Long-term bucket: The remaining $800,000 in a diversified stock portfolio, aiming for growth over the long term.

 

Spreading your money across different asset classes, sectors, and geographical regions can help reduce the impact of market downturns.

 

3.) Rebalancing & Review:

The goal is to be retired without watching the stock market daily. Will adjustments need to be made at some point? Of course! Rebalancing involves periodically adjusting your asset allocations to bring them back in line with your target. Reviewing your accounts 1-2x per year helps you assess the progress you are making towards your goals, and to see if you need to make any adjustments.

 

Maybe inflation is increasing, running at 3-4% annually, resulting in you allocating more of your assets into stocks to offset the cost of living increases.

 

With interest rates increasing significantly over the past two years, annuities have become very attractive for some investors.

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Investing in your retirement portfolio requires a strategic and disciplined approach that balances growth, with risk management and income generation. By diversifying across asset classes, managing risk, and staying focused on your long-term goals, you can build a secure retirement portfolio that provides financial stability and peace of mind throughout retirement.

And what matters more in retirement than peace of mind?

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Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

All investing includes risks, including fluctuating prices and loss of principal.