Financial experts are advising retirees, who often favor the security of savings accounts and certificates of deposit (CDs), to consider a broader range of investments. Despite concerns about market volatility, strategic diversification is crucial for preserving purchasing power and ensuring financial security throughout a lengthy retirement.
To outpace inflation over a retirement that could span decades, experts suggest that even risk-averse portfolios should include an allocation to stocks, typically between 30% and 40%. Rather than picking individual stocks, retirees can gain market exposure with less stress by investing in broad-market exchange-traded funds (ETFs) or dividend-paying blue-chip companies, which can provide steady growth and income.
For direct protection against rising costs, several asset classes are recommended. Treasury Inflation-Protected Securities (TIPS) adjust their principal value with inflation, safeguarding capital against its erosive effects. Similarly, Real Estate Investment Trusts (REITs) offer a way to invest in commercial, healthcare, or industrial properties without the complexities of direct ownership. REITs typically provide higher dividend yields than many stocks and serve as a strong hedge against inflation.
In times of market decline, protecting principal becomes a priority. Instruments such as annuities and high-yield savings accounts can provide stability. While not high-growth options, these accounts currently offer competitive interest rates and, importantly, provide the liquidity needed for emergencies—a key advantage over less-flexible, long-term CDs.
For those seeking a simplified, hands-off approach, target-date funds remain a viable option even after retiring. These funds, which invest in a diversified mix of U.S. and international stocks and bonds, automatically adjust their asset allocation to become more conservative over time. This built-in rebalancing removes the guesswork and helps manage risk as an investor ages.
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