Why Your Portfolio Should Change as You Near Retirement


It's a common misconception that your portfolio should remain the same as you near retirement. After all, your investments have worked well enough to get you to retirement’s doorstep. In reality, as you approach retirement your portfolio should change considerably. Your investment choices need to reflect the changes in both your goals and current situation so there aren't any unpleasant surprises down the line. So, what changes should you be making? Well, there’s no simple step-by-step answer to that question as every situation is unique. However, there are some key things within your portfolio that you can begin to examine and make adjustments.


Portfolio Diversification

As you near retirement age, it's vitally important to stay diversified in your portfolio. Diversification is the key to success and longevity for an investment portfolio because it spreads out risk across multiple investments. If one of your investments isn't doing well, hopefully, another will be making up the slack. This way you aren't relying on just a single investment or source of income that could see a downturn resulting in your being short-changed financially during retirement.

It is good to remember that simply having multiple mutual funds in your portfolio does not necessarily mean you are adequately diversified. Oftentimes, your investment manager may own the same companies that are held inside other funds you hold. This duplication, or overlap, decreases your portfolio diversity, potentially masking the risks that you are taking with your retirement investments. It is worth taking the time to understand what you really own in your retirement portfolio.


Risk Tolerance

As you near retirement, it is advisable to reassess your tolerance to risk. When the markets go down significantly, you may no longer have the time horizon necessary to wait out the volatility. This is especially true if you are planning on drawing an income from your investment portfolio. It is important to think through what the upcoming needs are from the portfolio and select investments that are best suited for those needs. If you will need money in the next few years, that portion of your investments should be invested much more conservatively than the longer-term growth portion of your investments.

Psychologically, it can be more difficult to tolerate market volatility when you are relying on your money to meet your day-to-day needs in retirement. Even an investor that understands the markets and has stayed on course through previous downturns can be prone to emotional decision-making that is often detrimental to long-term success. This is normal and an investor’s portfolio should adjust to this change in a retiree's attitude towards risk.


Asset Allocation

As the demands on your portfolio change when you enter into retirement, having the proper asset allocation is key. While the stock market offers the best long-term opportunity for growth, the volatility could create problems that put your retirement plans in jeopardy. The proper asset allocation for you is determined by the needs that you have and balancing the risks and return potential of your investment portfolio. Having a clear idea of how you are planning to use your funds in retirement is essential to selecting the proper investment tools for the job. Once you have determined your retirement allocation, you will need to keep it in balance as the markets push the portfolio out of balance. It is best to approach this in a disciplined way, rather than letting emotions sway your decisions.


Schedule a Consultation with an Experienced Financial Advisor

Thinking about retirement is exciting, but it can also bring anxieties. Many people will need to make significant changes as they near retirement in order for their investment goals to become reality. Having a trusted financial advisor in your corner can help make this process easier and we here at Fourth Avenue Financial want to do just that for you. Our first priority is your overall financial success. We want to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://bit.ly/3nbIQjr. We look forward to answering all of the questions from this article for you and more!

Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.


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