Increasing Retirement Income And Checking Portfolio Risk
In the old days, increasing retirement income was a bit of an afterthought that employees
slaved away for a few decades, picked up the proverbial gold watch, and moved on to fund their retirements with pensions, CDs, and Treasury-backed securities. There was not a lot of theorizing and planning involved in terms of investments, and it was not needed back then. Nowadays, the gloom-and-doom situation of the world market is bound to shoot down retirees who are not proactive when it comes to their investments, or seniors who have not optimized their retirement savings plans and other sources of income. CDs and T-bond yields are painfully low these days, making them unreliable investments for the financially beset worker.
There may have been a lot of investors who tolerated the tiny returns because they still had liquidity and good credit when the credit crises occurred and financial uncertainty was rising.
Today, some experts say that the economy is recovering, and that investors can make more due to lower rates and an influx of capital. 5% annual yields are now within reach with assets and environments such as emerging markets, loans from senior banks, and what is known as, master limited partnerships.
Advice on these investments veers towards the obvious: investments that generate high yields usually involve more risk for your portfolio, so use the proper investment strategies that still manage the degree of investment risk you undertake.
Corporate bond and Treasury investors also need to recheck their investment risk, despite the reputation of these products and tools as highly stable that many underestimate the current risks involved with these investments. Although bond funds received a transfusion of nearly $275 billion since the beginning of the year (which can keep rates manageable for half a year to twelve months) future rate increases will cause a drop in the value of securities. A fifty-point rate increase can result in principal losses of up to 9% for those who have bonds with longer durations that is, if these investors are able to sell the bonds off before maturity. With these types of bonds, longer maturity periods usually hold a larger threat to investors because of the rising rates.
In terms of current investment risk, conventional wisdom may no longer apply. Today, portfolio strategists recommend that credit and international exposure to fixed-income investments will help you lower portfolio risk and add more diversification to your investments that one apparently counter-intuitive way of increasing retirement income and preserving your wealth for your golden years.
by: Katherine Smith
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