Carefully managing your investment portfolio over time will be essential to a comfortable retirement. Throughout your working years, your investment portfolio—the total of all of your investments made across different accounts—grows to the point where it can give you the income you need to support your lifestyle in retirement.
Throughout your life, your time horizon and risk tolerance will likely change, which means that your investing strategy and portfolio will also likely need to adjust. Continue reading to find out how to create and manage a sustainable investment portfolio that complements your investing style and financial goals.
As you approach retirement, your investment portfolio should reflect your changing needs and risk tolerance. While growth is still important, you’ll also want to focus on income generation and capital preservation. Here’s a breakdown of what your portfolio might look like at 55:
Asset Allocation:
- Stocks: 60%
- Bonds: 35%
- Cash and equivalents: 5%
This is just a general guideline, and you may need to adjust it based on your individual circumstances. For example, if you have a high risk tolerance, you may want to allocate more to stocks. Conversely, if you’re risk-averse, you may want to allocate more to bonds.
Stocks:
- Large-cap stocks: These are stocks of large, well-established companies. They tend to be less volatile than small-cap stocks and offer a more consistent stream of dividends.
- Dividend-paying stocks: These stocks pay out a portion of their profits to shareholders on a regular basis. This can provide you with a steady stream of income in retirement.
- Growth stocks: These stocks have the potential to grow in value over time. However, they also tend to be more volatile than other types of stocks.
Bonds:
- Government bonds: These are bonds issued by the U.S. government. They are considered to be very safe investments, but they also offer relatively low returns.
- Corporate bonds: These are bonds issued by corporations. They offer higher returns than government bonds, but they also carry more risk.
- Municipal bonds: These are bonds issued by state and local governments. They are exempt from federal income tax, and they may also be exempt from state and local income taxes.
Cash and equivalents:
- Cash: This includes money in your checking and savings accounts. It’s important to have some cash on hand for emergencies.
- Money market funds: These are funds that invest in short-term debt securities. They offer a higher return than savings accounts, but they are also more volatile.
Additional Considerations:
- Your time horizon: How many years do you have until you retire?
- Your risk tolerance: How much risk are you comfortable taking?
- Your income needs: How much income will you need in retirement?
- Your tax situation: How much tax will you have to pay on your investments?
Review and Rebalance:
It’s important to review your portfolio regularly and make adjustments as needed. As you get closer to retirement, you may want to gradually reduce your exposure to stocks and increase your exposure to bonds. You should also rebalance your portfolio periodically to ensure that your asset allocation remains in line with your goals.
There is no one-size-fits-all answer to the question of what your portfolio should look like at 55. The best approach is to work with a financial advisor to create a personalized investment plan that meets your individual needs and goals.
Additional Resources:
- Retirement Savings by Age: What to Do With Your Portfolio in 2024 | T. Rowe Price
- How to Build an Investment Portfolio for Retirement | Investopedia
Keywords:
- retirement portfolio
- asset allocation
- stocks
- bonds
- cash and equivalents
- risk tolerance
- time horizon
- income needs
- tax situation
- review and rebalance
- financial advisor
Additional Notes:
- This article is for informational purposes only and should not be considered financial advice.
- Please consult with a financial advisor before making any investment decisions.
- The information in this article is accurate as of the date of publication.
- The investment landscape is constantly changing, so it’s important to stay up-to-date on the latest trends.
Portfolio Diversification
In order to reduce the impact of risk and the unfavorable performance of any one asset, diversification is the process of combining various asset classes and investment vehicles. Diversification will take a different form over time. In your twenties, you might choose to diversify your investments across a range of equity categories, including large-, mid-, and small-cap stocks and funds as well as possibly real estate.
But as you get older—into your 40s and 50s—you might want to consider shifting some of your assets into more conservative industries. These include preferred stock offerings, corporate bonds, and other moderately aggressive financial instruments that have lower risk than pure equities but can nevertheless produce competitive returns.
Precious metals, derivatives, oil and gas leases, and other non-correlative assets are examples of alternative investments that can help lower your portfolio’s overall volatility. Additionally, they can aid in producing higher returns when conventional asset classes are dormant.
A retirement portfolio should not contain a disproportionate amount of company stock. If it makes up a sizable portion of your retirement savings, a significant decline in its value could fundamentally change your retirement plans.
What Is an Investment Portfolio?
All of the investments you have across multiple accounts are included in your investment portfolio, which includes:
An ideal portfolio for retirement investing would be one that is built to support your needs for the remainder of your life after you leave the workforce.
For your returns to compound over time and increase the value of your portfolio, you must start saving money and making investments as early in life as possible. Your money really works for you over time if you give it the best chance to compound.
A significant portion of your earlier years’ investments should be focused on for growth in your ideal retirement portfolio. Equities, growth stocks in particular, are such an investment.
What Should Your Portfolio Look Like? (Asset Allocation by Age)
FAQ
What is the best investment at 55?
How much should a 55 year old have saved?
|
Investor’s Age
|
Savings Benchmarks
|
|
50
|
3.5x to 6x salary saved today
|
|
55
|
4.5x to 8x salary saved today
|
|
60
|
6x to 11x salary saved today
|
|
65
|
7.5x to 13.5x salary saved today
|
What should your portfolio balance be at age 50?
Is 55 too late to start saving for retirement?
What makes a good retirement portfolio?
An ideal retirement portfolio also calls for a focus on a large percentage of growth investments in your earlier years. Equities, growth stocks in particular, are such an investment. Retirement plans are designed to help investors increase the value of their investments over long periods of time.
Should a 40-year-old have a 60/40 portfolio?
This calculation is much more in line with expert recommendations. This means the 40-year-old has 20% in bonds and the young investor has a portfolio of 100% stocks and no bonds at age 20. This also yields the stalwart 60/40 portfolio for a retiree at age 60. A more optimal, albeit slightly more complex formula may be something like [ (age-40)*2].
Is a 60/40 portfolio a good investment for a retiree?
Both the [age minus 20] formula and the [ (age-40)*2] formula would result in a traditional 60/40 portfolio – considered a near-perfect balance of risk and expected return – for a retiree at age 60. Several lazy portfolios exemplify notional asset allocation models: Here are a couple fun facts.
How to choose a good investment portfolio?
You can decide the precise allocation based on your unique needs, financial goals, investment budget, and income. A lot of people also choose the 70-30 portfolio at this age, with 70% allocation in equity and 30% in debt and cash. 5. If you are in your 60s