I’m a 76-year-old widow with a $153,000 mortgage, $73,000 in investments, and $20,000 in a high-yield savings account. My Social Security and very small pension provide me with a monthly income of $3,400 per month. I save about $400 per month, split between my bank savings ($100), my high-yield account ($200) and my investments ($100).
My investments are split 50% in stocks and 50% in bonds. It appears that stocks made money, but bonds lost money. My investments have stayed around $73,000 for the past two years, despite the $100 per month I’ve been investing.
Is the old adage that at this age it is best to split investments 50/50 into stocks and bonds still true? It seems like if I had more stocks, I would have made more money over the last two years. Given today’s market, is there a better way to diversify investments?
See: I want to retire at 55 in a country where health care is free. My spouse will get Social Security and I have $160,000. Are we crazy?
Do you have a question about your own retirement savings? Email us at HelpMeRetire@CNET.com
Dear reader,
In fact, at your age, the old adage would probably be to have plus bonds than stocks, because the former tend to be more conservative. That said, it’s not the right decision for everyone and your investments should be allocated to best suit your interests and goals.
Many people have been unhappy with the performance of their investment portfolios over the past couple of years. So you are certainly not alone. But it’s best not to rely on past performance when investing, especially in the short term, and so don’t change your portfolio for that reason alone.
However, it is healthy to take stock of your asset allocation. Perform a thorough analysis of your stocks and bonds. What exactly are you investing in? Then return to your financial plan. If you don’t have one, start immediately.
Consider your assets and liabilities, look at how much money you spend (or need to spend) each year and where that matches up with your income. Consider how these expenses might change in the future, both in the short and long term.
Try to determine how much money you will need for the rest of your life. This is a difficult exercise, and it’s not possible to pin down a number, but try this rule of thumb: multiply your expected monthly expenses by 12, then multiply that number by 25. This is a very wide. Keep in mind that many factors could affect this number, including inflation, interest rates, emergencies, medical expenses, and more.
Risk tolerance vs. risk capacity
Even if you opt for riskier options, you may not be able to do so. et achieve your goals in a realistic or reasonable manner. There are two terms to know here: risk tolerance and risk capacity. The first is how much risk you can handle, like emotionally handling a drop in your retirement account balance after a bad year. The latter corresponds to the level of risk that your finances can withstand without deviating from your trajectory in relation to your financial needs and objectives.
It’s fantastic that you can save part of your income. If you don’t want to shake things up with your current investment portfolio, open a separate investment account into which you contribute a small portion of your excess income each month and choose a higher allocation to stocks.
Just make sure this account, or any other venture you’re considering, doesn’t take away from the plan that will keep you financially afloat and comfortable in your later years. Your retirement assets are not something you want to gamble away.
Consult a qualified and trusted financial planner who can guide you through specific investment options and create a more personalized asset allocation for you. The 50/50 strategy may be right for you, but the sooner you figure it out, the better for your future and your finances.
Also see: I am 62 years old, single, have a “mountain of debt” and want to start a business. Am I able to take a financial risk?
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Do you have a question about your own retirement savings? Send us an email at HelpMeRetire@Crumpe.com
2023-12-27 23:25:43
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