LONG-TERM INVESTING

Many financial advisors say retirement plan participants are too cautious in choosing the right investment mix.  If you tend to be too guarded, it could have a significant effect on the size of your nest egg for retirement.

Calculate Needs and Wants

Do you know how much money you will need to cover your living expenses and the extras during your golden years? Calculating your retirement expenses can help you decide if you're being aggressive enough in saving to meet your goals.

Take the Risk or Not?

Assessing your tolerance for risk is another important step in the retirement planning process. Your financial plan should be designed based on the risks you're willing to take to meet your goals. Determining your risk tolerance will help you set the boundaries for appropriate investments. Generally, the relationship between risk and return indicates that the greater the risk of loss, the larger the potential for a significant return.

Who Benefits from Risk?

Those who have a longer timeline before retirement typically can benefit the most from incorporating greater risk into their investment strategies. If you have 20 to 40 years to save for retirement, stocks or funds that hold stocks may be attractive because of the long-term investment horizon. A longer timeline may help you ride out market fluctuations and evens out the price variation you may see in a more aggressive portfolio. Historically, stocks have tended to outperform other investments and have achieved a rate of return higher than the inflation rate over the long term.

Try to determine if the return on your portfolio will meet your savings goals. Saving $4,000 a year with a 10.7% average annual return would result in savings of $484,046 in 25 years. But, if you were to take a less aggressive approach and save $4,000 a year with a 7% average annual return, your nest egg would only grow to $270,705 after 25 years.

Even if you are only a few years from retirement, consider keeping a portion of your portfolio in stocks. This will help give your portfolio the potential to keep growing to fund your retirement expenses even after you retire.

Where Do You Stand?

Contributing as much as possible to your employer-sponsored retirement plan is a great way to help you achieve your retirement savings goals. Taking the time to update the investment mix in your portfolio based on your goals, timeline, and risk tolerance will help ensure you are being aggressive enough to meet your needs for living comfortably in retirement.

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