There is always an inherent risk associated with investing in the stock market. You don’t want to be a few years from retirement and have the stock markets plummet to all-time lows, bringing your nest egg down along with it. A catastrophe like this could delay your retirement. In order to reach your investment goals, you need to invest in the market. If you play it safe and put all of your money into fixed-income investments, it will be hard to reach your investment objectives. Here are a few strategies to help you build your nest-egg effectively and safely.
Gradual Allocation Shift
Over time, you can gradually decrease your equity holdings while increasing your fixed-income investments. Some products even allow you to have this automated on an annual basis. This kind of strategy, implemented over a number of years, helps protect you from the risk of converting all of your investments to fixed-income when the market is struggling.
The Bucket Approach
This approach is sometimes called “multiple time horizons.” In this strategy, you divide your investments into a number of different streams, each with a unique plan to suit each time horizon. If you plan on retiring soon, for example, you can have a short-term program designed to hold its own without much risk, a long-term program that can withstand some market volatility, and a medium-term program that has a mix of both. This strategy gives you a very good chance to have enough money to initially retire and some room to grow so your nest egg can see you through to the end.
Some investment funds offer to protect some or all of your initial investment, guaranteed. Segregated funds are a good example of this. This initial safety net allows you to pursue growth-oriented investments. One downside is that these investments have higher than average MERs (management expense ratios).
It’s important to remember to remain true to your own personal investment profile. Don’t go beyond your risk tolerance to reach an investment goal. It’s not a bad idea to start saving more or even delaying your retirement if your goal hasn’t been reached. Most people will go through some investment changes within five years of their planned retirement date. If you are looking for help developing an investment program with your desired balance of growth and safety, you should contact an investment advisor at The Beacon Group of Assante Financial Management, Ltd.
A description of the key features of the applicable individual variable annuity contract is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.