Ten years ago, most people wouldn’t have thought to question stock market investing as a form of retirement. However, in 2008 and 2009, we watched as good people lost their retirements to bad investments. Since then, the market has recovered quite a bit, but it’s still a volatile place, leading to concerns for investors with long-term plans.
Disclaimer: Before going any further, it’s important to make it clear that everyone has a unique financial situation, unique goals, wants and needs. Therefore, no article, including this one, should ever be used as investment advice. This content is designed to spark ideas and open your mind to opportunities. However, before taking advantage of POSSIBLE opportunities, it’s important to discuss the option with the financial professional (CFP or CFA) of your choice. Learn more about financial advisors here.
Is the Stock Market a Safe Place for Your Retirement Investments?
Have you ever heard the saying “Don’t put all of your eggs in one basket?” This is literally the most important saying one can keep in mind when discussing investing. The reality is that the stock market is a great place to make money and can also be a great place to lose it. But if done properly, you can minimize your risk of loss while maximizing your potential for earnings. It sounds like an oxymoron, but all it takes is diversifying your investment choices.
What Is a Diverse Investment Portfolio?
A diverse portfolio is essentially having a portfolio that includes more than one investment. By including multiple investments, if one falls, you can lean on the others for support during the downtime. However, it goes a bit further than that. A healthy, diverse profile generally includes several different types of investments. This way, when one falls, there are other lucrative investments that absorb losses. This helps you to realize growth no matter what happens in the market.
A good example of this would be a portfolio that includes a healthy dose of stocks, bonds, and commodities. In this case let’s say there’s a good portion in high yield United States equities (split over several different assets), there’s a bit of money in municipal bonds to reduce risk, and to hedge against losses, there’s gold thrown in the mix. In this case, when stocks were rising, the portfolio would have more money in stocks than anything else. However, if things were to suddenly flip, the value of gold will rise as investors start to look for safe haven investments. While there will be losses, the gold hedge will lighten the blow and give you more time to react to the change in tides in the market.
Back to the Original Question
So, is the stock market a legitimate place to invest your retirement savings? Considering that you and your CFP or CFA sit down and come up with a plan that meets your goals, the stock market is absolutely a great place to invest for retirement. However, it’s not a good place to place all-or-nothing bets. A diverse portfolio is the key to risk management, and the last thing anyone would want to do is take excessive risks with retirement funds!
Are Investment Returns What Retirement Planning is All About?
No. A lot of people retire with little or no savings. Depending on your situation, other factors can dramatically impact your retirement security.
A retirement plan hinges on a multitude of factors:
- When you start Social Security and what other sources of retirement income you have
- Your retirement expenses
- How long you live and in what health
- Inflation rates
- Your assets — beyond savings
- And yes, returns on your investments
The NewRetirement Retirement Calculator is a planner that helps you take all of these factors into consideration. It will assess your current situation and enable you to try out different scenarios.
This article was written by Joshua Rodriguez, who is the owner and founder of CNA Finance.
