Can you retire with your current portfolio?

Can you retire with your current portfolio?

10:00 11 June in Blog
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“And in the end, it’s not the years in your life that count. It’s the life in your years.” – Abraham Lincoln

According to Business Insider, “48 percent of Americans claim that money is their main barrier to investing.” On the contrary, the remaining 52 percent of people have invested in 401Ks, stocks, mutual funds, and start-ups. Pinpointing the motivational factor for investment, a fairly consistent reason over the past several decades, an individual’s financial stability is a major cause for investment or lack thereof. By comparison, there is positive relationship between age, income earned, and investment activities, meaning as Americans age their typical earnings increase and therefore, their investment activity increases.

Despite the low participation of millennials investing, it is quite notable that this group of individuals saves more by comparison to previous generations. It is also interesting that, the incentives to save for millennials boils down to achieving financial freedom for both emergency situations and their retirement plan.

To suggest that savings made for rainy days could only be achieved through tangible investment bodies like 401K, stocks markets, and Angel Investors, is inaccurate. Although these investment bodies like so many others aim to facilitate economic perpetuity for both the society and its individuals, there are other pockets to discover when considering a retirement plan. Retirees typically have income from two sources, their personal savings and investments through tangible investment bodies. The question of whether an individual could retire with their current portfolio depends solely on their spending behaviors, lifestyle, and financial commitments they have made. While this answer is both binary and subjective in nature, we encourage all individuals to take the time and invest their personal resources into many investment opportunities whether it be 401Ks, savings, investment portfolios, stocks, etc. Investing and saving are the only opportunities for retirees to have personal wealth when their careers have come to an end, finding a solution earlier rather than later can mean the difference in a happy, and fruitful way of life.

So, what are the incentives to invest in a retirement portfolio? First off, there are several things to consider when investing. More accurately, your investments are usually broken down to several characteristics, these are growth, risk, and diversification. The structure of investing in retirements are usually devised over a long period of time. In brief, fruitful growth instruments such as stocks and bonds are determinants of a successful retirement portfolio.

Since 1926, the returns of investment for various assets, according to Investopedia, “stocks have averaged about 10% growth per year, while bonds have grown at only half the rate and cash has posted about 4% per year.” The important thing to note is that cash by comparison to other forms of asset classes, generates the least return after discounting for inflation, which increases 2% annually. To put things into perspective, having the inflation rate as a variable fixed annually, the 4% growth in cash is only generating a real return of 2% annually. By comparison, stocks and bonds generates an average of 8% and 3% real returns respectively.

The ability to diversify a retirement portfolio is another incentive to consider. Adequately diversifying portfolios can aid in breaking the association of high risks investments. The availability of various assets like derivatives, corporate bonds, and non-correlative assets are examples of low volatile assets that should be considered in a retirement portfolio. Investing in a mix of assets like small cap stocks, start-ups, real estate, and treasury bonds are examples of an adequate mix. In brief, “an ideal retirement portfolio will not depend too heavily on shares of a company stock that are purchased either inside or outside the participant’s 401(k) or other stock purchase plan” (Investopedia).

Kaitlyn Barber

kmbarber@svsu.edu
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