Design Your Retirement Portfolio

If planning for an early retirement, invest right is the mantra.

It is not possible to undo the mistakes committed while designing any retirement portfolio. So please read on the points to consider while creating the same.

Risk free investment-

The investor’s retirement portfolio should consist of risk-free investments.At later stages investors should invest less in stocks and more in bonds and other risk-free instruments. If an investor invests more in stock and accrues loss it becomes difficult for the investor to cover losses at this stage.

An investor should also think about the inflation while constructing a portfolio. Gradually inflation rate will rise and can affect the return on the investment.

Diversification and asset allocation-

The selection of asset classes is of paramount importance. For good returns, an investor should include the proper proportion of stocks, bonds, and cash alternative in his investment portfolio. Many investor’s retirement portfolios are not properly allocated; they expose their portfolios to unnecessary risks.

For example, if your age is 30 then you can make more investments in equities and less in bonds if investors accrue losses they can cover the losses. On the other hand, if you are nearing retirement, you can invest more in bonds and less in stocks, because bonds are comparitively safer than stocks but yield lower return. Cash based instruments like provident funds and fixed deposits can be allocated a small portion for safety as well .

Asset allocation helps to reduce the risk, but it still carries some level of risk. Proper Asset allocation is just a method of managing and reducing the risk. For good returns and avoid the losses on the investment, an investor should design the portfolio with advice taken from a financial expert.

Taxes-

Like inflation, taxes can also affect the return on investments. Many people do not take advantage of tax saving investment instruments. Lower taxes on investment will help give good returns. Therefore the investor should add a tax saving investment instrument in his retirement portfolio.

Foresight on expenses-

Most of the time investors do not consider the expenses after retirement. It is important to consider after retirement, what will be the average spending. An investor should take into account expenses like house renovation; dine out, holidays, etc. considering future expenses will help you to plan strategies accordingly.

Do not try to time the markets-

Your focus should be on long-term investment when you are building a retirement portfolio. Some investors believe that we shouldn’t invest when the market is down, but its opportunity to make the money. When building a retirement portfolio, investors focus should be on long-term investments.

Because of better nutrition and quality medical facility, life expectancies have continued to increase. People live until the age of 80 to 85 years old. The time investor spends after retirement is equal to or more than working years. It means you may live 20 to 30 years after retirement, and the investor has made saving according to that. So it is important to consider the time investor will spend after retirement.

Using the investment –

An investor sometimes mismanages tax-deferred asset. Sometime investors withdraw funds from their retirement plans as soon as they reach to 59. Some investors withdraw before the retirement.  The investor has to pay tax if they withdraw early. An Investor should withdraw once they reach the age of 64 or 65.They can get the tax benifit given to senior citizens.

Many investors fail to plan unexpected health and care expenses. It is important to take into account health and care expenses. Health insurance is the best option for this.

The investor should consider all of the above-mentioned factors before planning a retirement investment portfolio.

So if you are planning to take an early retirement and enjoy the life to the fullest, start investing in your retirement fund now .

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