Six Retirement Investment Strategies That Actually Work

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It’s no secret that our current economic situation on a global scale is in turmoil. Home prices and costs of daily living are drastically rising while incomes fail to keep pace.

This has left many people struggling financially, with no ability to prepare for retirement. Bloomberg recently found that two-thirds of Americans are not putting any money in their 401(k). Of the 33% that are contributing to a retirement plan, only 28% were “very familiar” with the investment options in their plans.

If you want to retire comfortably, you just cannot fall into either of these categories. If you do fall into these camps, you need to rethink your investments.

Lucky for you, we’re here to help. Below, we’ve compiled a list of the six best retirement investment strategies.

1. Diversifying Your Portfolio

So often it becomes tedious to hear, but I need to reemphasize: When it comes to retirement, you don’t want to put a lot of your money in just a few stocks and assets. It makes your whole portfolio vulnerable to volatile swings in the market, and you could potentially lose it all.

For example, you could put all of your retirement money into Facebook stock, but if public opinion turns against Facebook, as is currently happening, and the company eventually goes under, you will lose all of your money.

By fanning out your money and investing in a lot of different markets, stocks, funds or real estate, you will safeguard your nest egg against market volatility.

2. Picking An Index Fund

A great way to fan out your investments is with an index fund. An index fund is a mutual fund in which you place your money that grows with a broader index of the market, like the S&P 500. Using the S&P 500 as an example, an index fund would set a certain percentage of your money in all of the individual stocks in the S&P 500.

There will be far more stocks over which to spread your money, widely diversifying it between blue chips corporations and smaller stocks with great potential (but higher risk). If, for example, Apple stock tanks, your money still won’t plummet significantly. And, over an extended period, most index funds are profitable.

The trade-off for your relative safety may be a smaller return on investment, though.

3. Picking Low-Cost Funds

This is one of the most underrated investment strategies out there. Regardless of whatever funds you decide to put your money in, there will always be annual management fee. Typically, this fee is a percentage of the funds in your portfolio.

You want to pick funds with low fees for two reasons. The first is that research shows that low-fee funds tend to outperformhigher-fee funds. The second reason is somewhat self-evident. As you save for retirement and your portfolio slowly generates a return, you want to give as little of that money away in fees as possible.

The point here is that you should be making money, not paying money to make money.

4. Balancing Stocks And Bonds According To Age

This is one of the safest retirement investment strategies. Your investment portfolio should always be a mix of stocks and bonds.

The general wisdom here is that bonds are safe, conservative investments that will offset the risk you take on with the stocks you choose, which are thought to be more aggressive investments with a higher return.

However, if you’re young, you want to tilt the balance of your 401(k) or Roth IRA in the stocks’ favor. Because they have a higher return on investment, you can grow your retirement money faster.

So if you’re 25 years old, for example, you may want to place around 75-85% of your retirement money in stocks and the rest in bonds. As you age and get closer to retirement, you’ll want to protect the investments you’ve made by transferring more towards bonds. Barring a horrific government collapse, your money will be relatively safe.

5. Dividend Reinvestment

Holding dividend stocks is one of the best retirement investment strategies you can take.

A dividend stock is a stock that gives cash to the shareholder on a quarterly or annual when the company makes a profit. Dividends are a portion of after-tax profits earned by the company and can show stability within the corporation. Stocks that pay dividends are known to outperform non-dividend paying stocks, so it’s a great long-term investment.

And, by reinvesting those dividend payouts into the stock, you can keep your money growing in the market instead of cashing out entirely.

6. Buy And Hold

Here is another one of the pillars of retirement investment strategies. There is no simpler strategy than buying a stock, any stock, and holding on to it for a long time. It is especially important to remember this if you’re young. A retirement portfolio should be structured to grow slowly over several decades, so you need to give it room to do its magic.

Like diversification, this technique is a fantastic way to mitigate the damage a volatile market can impose on your portfolio. When it comes to stock markets, things tend to balance out over time.

For example, when the recession hit the U.S. in 2008, many people sold all of their holds in a panicked frenzy. But, if they had just held on for long enough, they would see the market return to its current, more stable state — and they wouldn’t have lost so much money.

Ready to retool your retirement investment strategies?

With this knowledge, you should be well-equipped to start your retirement fund. As long as you diversify your investments and position yourself to withstand market volatility, you’ll come out ahead. But, remember, only invest your money after you’ve taken a hard look at the fees, too. Be safe out there.