How to Structure an Investment Portfolio for Retirement
Americans are living longer these days than in times past. As a result, many people's retirement portfolios will need to stretch farther than they once did. Before reaching your retirement years, take steps to help your retirement portfolio stand the test of time.
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Instructions
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Understand that as you approach retirement, your investment portfolio needs to keep growing to help assure you have enough money to maintain a comfortable retirement. Look over your portfolio yourself or with a financial advisor to determine whether you will be able to retire at the age you have determined. If necessary, plan to work a few years longer to accumulate additional funds.
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Assess your current cash flow by creating a realistic budget. Writing down detailed information about your spending and expenses will help keep you from underestimating your retirement needs. Consider whether your mortgage will be paid off by the time you retire or whether you'll be paying rent into your retirement years. Remember to include expenses for health care, leisure travel and hobbies as well.
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Be aware that as your portfolio increases in value, it's more difficult to rebound from significant market downturns. Even though your portfolio needs to maintain some growth in your retirement, many financial advisors recommend that people reduce their stock holdings to guard against major potential losses that can wipe out retirement funds.
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Remember that investment returns can be reduced by fees associated with financial products, including mutual funds, individual stocks and bonds. Look for ways to reduce such fees. For example, index funds, which are low-cost mutual funds, seek to match the performance of the markets they represent. Index funds can include a group of stocks or bonds.
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Reduce the risk for significant portfolio losses through diversification, which spreads investments among different asset classes, including stocks, bonds, real estate and commodities. However, diversification also includes having exposure to different industries as well as large and small companies along with domestic and foreign investments.
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