The Best Investments after 60
Investing after 60 is different than when you were younger. You need to know some key things, such as how to manage high-risk assets, how to take required minimum distributions, and how to rebalance your portfolio throughout your retirement.
Rebalancing your portfolio throughout retirement
Whether you are rebalancing your portfolio throughout retirement or just before retirement, it’s important to keep your investment portfolio aligned with your financial goals. Asset allocation is the process of dividing your portfolio between different asset categories. It can be as simple as buying more shares in stocks than bonds, or it can involve reducing your contribution to an under-weighted asset category. Rebalancing can help you meet your long-term goals, while taking emotion out of the investing process.
Most investors review their investment allocations at least once a year. Others will revisit their asset allocations more frequently. The optimal frequency of portfolio rebalancing depends on the stage of your life, your investment goals, and your transaction costs.
Rebalancing is typically done when your portfolio becomes overweighted in any particular asset category. It can also be done when your risk tolerance changes. As you get closer to retirement, you may want to shift more of your savings into investments that offer higher income and lower risk.
Taking required minimum distributions
Taking required minimum distributions is mandatory for anyone who owns a qualified retirement account. These include traditional IRAs, 401(k) plans, and 403(b) plans. If you are thinking of retiring early, it is a good idea to learn about the rules before you invest.
Required minimum distributions (RMD’s) create a tax liability, so be sure to calculate them carefully. Failure to take the correct amount could lead to a large tax bill. In addition, failing to take the RMDs could result in a penalty of up to 50% of the RMD amount.
You can delay taking RMDs until you reach age 72, but you will have to start taking them by April 1st of the year after you reach age 70 1/2. You can also choose to defer your RMDs until the end of the year if you think the stock market is undervalued. However, if you are thinking about retiring early, you should take your RMDs by April 1st of the year after your retirement.
Investing in high-risk assets
Investing in high-risk assets after 60 may not be the best idea for everyone because you have less years in which to salvage a potential loss.
A diversified portfolio of quality investments can offer peace of mind and a supercharged nest egg. It is also the best way to protect your principal.
The most common asset category for income and principal protection is bonds, but there are other options available. High quality dividend paying stocks can be an appropriate core holding. Alternative investments such as gold and commodities can provide diversification, but their risks must be carefully weighed. A well-diversified portfolio is the best way to protect your principal.
A 60/40 portfolio (60% stocks, 40% bonds) is an investment strategy that has delivered a strong performance over the last two decades, with the exception of this last year, 2022, in which both asset classes declined concurrently.
The 60/40 strategy is still relevant, but the portfolio may be smaller than it used to be. Higher inflation leads to higher yields on bonds, which may restore once again the merits of this strategy.
Investing in your 70’s and beyond
Investing in your 70s and beyond can be profitable, but there are certain considerations to make. The first step is to calibrate what you will need to provide for your retirement. Then, you should learn what investments are suitable for you.
This means reassessing your risk profile. You should avoid any investments that are too risky for you. Instead, you should focus on investments that provide income and capital growth.
If you’re an aggressive investor, you may choose to shift your asset allocation toward conservative investments and bond ladders as you approach retirement. As an example, you may want to build a bond ladder with a series of bonds that mature each year to provide enough for your annual RMD.
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DISCLAIMER: This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. Investing involves risk, including possible loss of principal. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness.