If you are like most people, the savings earmarked for your retirement may be scattered among several different places. Today we’ll look at a few of those possibilities and discuss some alternatives.
The point of this discussion is to help you to see the entirety of your retirement asset base as a whole, but one with multiple components; and to think about ways to maximize the overall rate of return.
The first thing to do is to categorize those retirement assets that you currently own. These may fall into several categories:
-
Assets held in your own name or jointly with a spouse
- Brokerage accounts (containing stocks, bonds, mutual funds and/or ETFs)
- Mutual funds
- Hedge fund accounts
- Real estate (other than your home(s))
- Precious metals, gemstones, collectibles
- Partnership interests, stock in privately held companies, venture capital investments
- Annuities, whole life insurance policies
- Vested rights to old-style defined benefit pension plans (not many of these left!)
-
Assets held in a current employer’s retirement plan
- 401(k) for many corporate employees
- 403(b) for teachers and some others
- 457(b) for many government employees and some employees of non-profits
- Other retirement account sponsored by a current employer
-
Assets in plans like the above sponsored by former (not current) employer
-
Assets held in a tax-advantaged retirement account for you as an individual, which may have a bank, a brokerage, or another type of company as custodian. All of the following types of accounts are most often invested in mutual funds, although there are other possibilities.
- Traditional IRA
- Roth IRA
- SEP-IRA
- SIMPLE IRA
- Solo 401(k)
Making a complete inventory of the assets you have to work with is a necessary first step. For each one of these assets, you’ll need to know its current market value and an estimate of its rate of return. If you work with a financial adviser, they should be able to help with that. If not (and if not, congratulations on your initiative to manage your financial affairs personally!) this is homework that you’ll need to do. For rate of return estimates, look at previous years’ statements, going back as far as you can to get a picture of the rate of return in differing market conditions. One warning: for stocks and mutual funds, the last seven years have been a roaring bull market, a period of atypically high returns that we would not expect to be the norm going forward.
With this information listed on one page, you can now see the whole and its component parts.
The next step is to decide what needs to be changed, if anything. The goal is to have an asset base that provides an adequate return, while being properly protected against a bad market in any one area such as the stock market.
One example of what you would not want to see, unfortunately, is the situation that many people find themselves in. That is having all of your assets in a current or former employer’s 401(k), where it is invested in a couple of stock-based mutual funds. These funds (and all stock-based mutual funds, whatever their orientation) could be decimated by a stock market crash. And the nature of stock markets is to have bull markets alternating with crashes. So the next crash is always only a matter of time.
For that reason, we want to make sure that it is never the case that all of our retirement money is in stocks (or mutual funds and/or variable annuities, which also are entirely dependent on stocks). What we need is true diversification across entirely different asset classes, as well as a system of management that protects what we do have.
The process of selecting and managing your investments is entirely within your capabilities once you are educated on the subject. We’ll talk about more of the highlights in the future. Meanwhile, making the inventory and determining your starting point is one of the necessary first steps.
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
EUR/USD holds above 1.0650 after US data
EUR/USD retreats from session highs but manages to hold above 1.0650 in the early American session. Upbeat macroeconomic data releases from the US helps the US Dollar find a foothold and limits the pair's upside.
GBP/USD retreats toward 1.2450 on modest USD rebound
GBP/USD edges lower in the second half of the day and trades at around 1.2450. Better-than-expected Jobless Claims and Philadelphia Fed Manufacturing Index data from the US provides a support to the USD and forces the pair to stay on the back foot.
Gold clings to strong daily gains above $2,380
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Ripple faces significant correction as former SEC litigator says lawsuit could make it to Supreme Court
Ripple (XRP) price hovers below the key $0.50 level on Thursday after failing at another attempt to break and close above the resistance for the fourth day in a row.
Have we seen the extent of the Fed rate repricing?
Markets have been mostly consolidating recent moves into Thursday. We’ve seen some profit taking on Dollar longs and renewed demand for US equities into the dip. Whether or not this holds up is a completely different story.
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