Consolidating Your Retirement Money – Determine Your Objectives
  1. Consolidating Your Retirement Money – Itemize Your Assets
  2. Consolidating Your Retirement Money – Determine Your Objectives
  3. Consolidating Your Retirement Money – Evaluate Performance
  4. Consolidating Your Retirement Money – Organize Your Assets
  5. Consolidating Your Retirement Money – Plan For The Future

Consolidating Your Retirement Money – Determine Your Objectives

Now that you know what you have – and where it all is – you may think it’s time to start taking action. But to do that, you need a plan. And to plan, you have to know what kind of investor you are and which investment objectives best fit you.

Your Risk Profile

Everyone has a comfort level with how much investment risk to take. The other important factor is how much time you have to make investments grow or to recover from a bad market or investment risk that went wrong.

– Risk tolerance measures how much risk you are willing to take to reach your financial goal. For example, are you willing to invest in something that could go down 20% next year? If so, then you have a high risk tolerance.

– Time horizon simply means how long before your retirement. If you will retire in 20 years, that is your time horizon.

Your Investment Objective(s)

Simply defined, an investment objective is a financial goal that you shape your strategies to achieve. There are four basic types: growth, income, capital preservation and tax reduction. You might focus your investments on one objective or prefer a combination. The way you employ the strategy will be shaped by the type of investor you are and the needs you have. For example, an income investor (see below) with a low tolerance for risk might choose investments at the less-risky end of the spectrum, such as treasury securities.

– Growth is appropriate for long-term and aggressive investors who can ride out the ups and downs in the stock market. Growth comes with the risk of losing principal and typically fits those who seek to fulfill long-term goals, such as saving for retirement or college. Growth investments include common stocks, stock mutual funds and ETFs, and real estate and REITs.

– Income is for those who seek a regular payout from their investments. This objective may or may not risk one's principal, depending on the type of vehicle used. Preferred and utility stocks, corporate and municipal bonds, government-agency securities such as Sallie Mae and Freddie Mac and senior secured loans pay higher income rates with relative price stability, while guaranteed instruments include CDs, treasury securities and savings bonds. Annuities can also provide some degree of guaranteed income by including income benefit riders in the contract.

– Capital preservation means safety. CDs, treasury securities and savings bonds do pay interest, but they are all backed by the full faith and credit of the U.S. government. Fixed and indexed annuities are backed by the cash reserves of the insurance carrier, which is in turn backed by state guaranty funds if it becomes insolvent.

– Tax reduction is fairly self-explanatory. It simply means investing in a way that minimizes the income-tax bill for whatever investment strategy you are using. For example, if you are a growth investor saving for retirement, you can achieve tax reduction by putting your retirement savings inside an IRA or other tax-deferred plan or account. Annuities also provide tax-deferral without having to be placed inside any type of tax-advantaged plan.

Where Do You Fit?

If you are somewhere in midlife, you could be retiring in perhaps 15 to 25 years. This means that your primary investment objective should probably still be growth, rather than income or capital preservation. And the farther away from retirement you are, the more aggressive your portfolio could be, unless you have serious family issues that make this unwise, such as providing for the future of a child with a disability.

Appropriate growth instruments can include stocks, real estate, REITs – or mutual funds or ETFs that invest in these vehicles. Be prepared to experience some ups and downs in your investments. The more risk you take with your investments, though, the greater the reward you can reap from them. Whatever you do, make sure that the majority of your portfolio is growing faster than inflation over time.

Here's where time horizon comes in: Your risk of loss due to falling markets goes way down when your time horizon is 10 years or more. As you get nearer to retirement, you need to start moving some of your holdings into more conservative instruments such as bonds or CDs. If you are a very conservative investor, you might be wise to add an annuity that provides guaranteed income benefits to traditional safe investments such as CDs or treasury securities. Regardless of your risk tolerance or time horizon, be sure that your portfolio is sufficiently diversified.

As you survey your assets and how they might grow, remember to include the cash value of your life insurance, if any; the equity you have in your home; and any pension benefits to which you are entitled, including Social Security. For example, if you will receive $500 per month from a defined-benefit plan, this will reduce the amount of income your portfolio will have to generate when you retire. Result: You can either take slightly less risk with your investments or perhaps retire a bit sooner – or live a little more comfortably.

If you are unsure what your investment objectives should be, don’t hesitate to enlist a financial planner. A professional can tell you which type of strategy you need to pursue to achieve your goals and may be able to help you put your objectives into effect. Of course, bring your spreadsheet or list of assets when you meet with a planner to provide the full picture of where you are.

Consolidating Your Retirement Money – Evaluate Performance

  1. Consolidating Your Retirement Money – Itemize Your Assets
  2. Consolidating Your Retirement Money – Determine Your Objectives
  3. Consolidating Your Retirement Money – Evaluate Performance
  4. Consolidating Your Retirement Money – Organize Your Assets
  5. Consolidating Your Retirement Money – Plan For The Future
  1. Financial Health

    A term used to describe the state of one's personal financial ...
  2. Investment Horizon

    The total length of time that an investor expects to hold a security ...
  3. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  4. Withholding Allowance

    An allowance an individual claims on a W-4 Form. A withholding ...
  5. Real Income

    The income of an individual or group after taking into consideration ...
  6. Pooled Income Fund

    A type of mutual fund comprised of gifts that are pooled and ...
  1. How do I retire?

    When considering how to plan for retirement, firstly think about the age at which you want to retire and the lifestyle you ... Read Answer >>
  2. Why should I invest?

    One of the most compelling reasons for you to invest is the prospect of not having to work your entire life! Bottom line, ... Read Answer >>
  3. Is there a minimum I have to contribute to my 401(k) plan?

    Deciding how much to put into a 401(k) account can be tricky. There are guidelines to ensure you are investing what you need ... Read Answer >>
  4. What are the best ways to plan for retirement?

    Learn the basic steps to creating a solid retirement plan that can support you and your family, and find out how to manage ... Read Answer >>
  5. Do I need an employer to set up a 401(k) plan?

    Investing in your retirement is not just a good idea, it's a must. Even individuals can invest in their own personal 401(k) ... Read Answer >>
  6. Where should I put my money?

    I am a novice when it comes to investing. I am 28 years old and would like to set myself up to retire around 55. I have about ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center