How Do I Allocate My Stocks if I'm Retired?
When you begin to use the funds you've saved for retirement, you probably will have to change your portfolio to more conservative investments. You can no longer handle the high-risk/high-reward portfolio you enjoyed in your 20s and 30s. This doesn't necessarily mean that you should switch everything to "safe" investments, though. Manage the risk in your portfolio while still allowing for some growth.
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Asset Allocation
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Investors usually keep their money in either stocks, bonds or as cash. Each comes with varying levels of risk and return. Stocks tend to be the most risky investment, as their value is tied to the market and you can lose the money you invested, but they may offer higher returns, especially over long periods. It's safe to keep your money as cash, but it doesn't earn any interest. Bonds are generally a happy medium, with safety, but lower returns. After retirement, people tend to move money from stocks into bonds or cash to keep the money available for use. Both the Nightly Business Report and the American Association of Individual Investors recommend keeping some -- up to 50 percent -- of your money in stocks
Conservative Stocks
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To feel more secure while enjoying the benefits of the higher returns you can earn by investing in stocks, stick with conservative stock options. These are less volatile than companies that may become big -- or fail -- but these less risky stocks still offer good returns. Financial company T. Rowe Price suggests looking for companies that offer dividends or undervalued stocks.
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Diversification
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Whether you're allocating a small or large portion of your portfolio to investing in stocks, it's smart to diversify your investments. You never want to put all of your money into one company; no matter how well you think it will do; you might lose it all. Mutual funds offer a convenient way to diversify, since they invest in several companies. Even if you invest in stocks through mutual funds, though, purchase more than one mutual fund to further diversify your portfolio.
Factors to Consider
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When choosing how aggressive or conservative to be in your stock allocation, pay particular attention to the amount of money you have in your portfolio and your life expectancy. If you are in good health and expect to live more than 10 years, for example, you may want to continue with somewhat riskier choices to avoid running out of money before your time. However, if you don't have much money in your portfolio and can't afford to lose the little money you do have, consider more conservative portfolios.
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