You make your investing so much easier and relaxed if you've a neat pile of money available at your disposal.
That neat pile comes when you smartly:
1. Grow a tight and tidy sum of savings to dig into for your monthly expenses while you keep your retirement savings intact. This means you've more moneys to do larger investments in stocks, bonds and treasury bills. Substantial personal savings also make you very liquid in cash
2. Maximise contributions to your company's retirement plan (the 401k plan, for instance). Don't depend entirely on the government's provision (such as the Social Security) to fund your retirement. It probably can only fund part of it and your dreamed lifestyle compromised....
3. Clear all debts upon retirement - be they car loans, house mortgages, college loans for your 's kind of restictive and limiting on your investment options if you got to still pay all these loans
OK, with a tidy sum (personal + retirement savings) availabe, how do you go about investing during retirement?
When investing's involved, you got to be real with 2 issues:
-The short-term risk of stock market volatility and the likelihood of losing principal amount invested in the short run, if you invest in stocks
-The diminishing purchasing power of your money due to inflation
I suggest 2 ways to go about your investing:
a. Invest a larger portion of your money in fixed-income investments ( certificates of deposits, money market funds, treasury bills and notes, short-term bonds)
b. Invest the rest of your money in stocks, which on average, will yield higher annual returns for you but you've to brace with the higher risks involved
I'm delving a bit more on how you can get more out of your fix-income investments.
-For ready money to fund monthly expenses, with no potential loss of principal - use a money market fund. It generally pays a higher rate of interest than the interest rate in savings accounts offered at your local bank
-For bank certificates of deposits (CDs) - shop for the highest cD rates. Banks vary widely in the interest rates they pay on CDs. You'd be surprised sometimes the differentials could be as big as 1.5%. Be sure to shop around again when your CDS mature; another bank may offer better rates.
One excellent way you can get higher rates (without forgoing your liquidity) is to build a portfolio of CDs with staggered maturities - meaning you invest in CDs which mature in 6 months, 12 months, 18 months, and so on. If you like, you can go for as long as 5 years to get the very highest rate. As each CD matures, roll it over to the most distant maturity
-For bonds - buy intermediate-term bonds. A 5-year corporate bond may pay 1% - 2% higher than a comparable 5-year CD. But, be warned, bond values go up and down as interest rates change (as interest rates rise, bond prices fall, and vice versa).
Nevertheless, if you don't sell your bond before it matures, you avoid the risk of loss. In order to hold your bonds to maturity, you got to build-in your liquidity needs
-For diversification - invest in bond funds (no-load) which go for multiples of different types of bonds with portfolios in short,intermediate or long terms and vary in the quality of holdings
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