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Playing it too safe in your retirement investing can hurt you

Ron Grensteiner President American Equity Investment Life Insurance Company

Since the great recession, there seems to be an almost ubiquitous wary feeling among individuals, urging them to constantly prepare for the worst. This need to “stay safe” can actually produce an adverse effect when saving for retirement, causing some to miss out on exponential savings gains. Indeed, there is a right way, and a wrong way, to be cautious with retirement saving. Below is some advice on how to optimize a retirement portfolio—without causing additional risk alarms to go off.


Do know how much you really need to save

Part of the anxiety associated with risk-aversion saving can stem from not knowing how much you actually need to save, causing you to save everything. It’s important to have a financial goal in mind so you understand exactly how much you need to save, can track your progress, and feel “in control” of your financial future. If any unforeseen circumstances happen, you will be able to calculate exactly how much you need to save and/or any money moves you need to make in order to put yourself back on track again.

Do develop a balanced portfolio

Of course, having a portfolio with all risky investments is not a good idea. But having a retirement portfolio with all safe investments is also not a good idea. Your retirement portfolio should be a healthy mix of risky moderation and guaranteed savings. As a risk-averse person, your retirement portfolio can skew towards more secure savings, but sprinkling in some minimal-risk investments can offer you diversified upsides.

Do invest in a fixed indexed annuity

Fixed indexed annuities are perfect for the risk-averse saver as they are uniquely designed to help you moderate risk and reward. Fixed indexed annuities allow you to take advantage of market upsides, while protecting you from market downturns (so you never lose money due to market volatility). Additionally, they can offer a guaranteed stream of lifetime income in retirement.

Do take baby steps into riskier investments

As you try to add some riskier investments to your balanced portfolio, take it slowly. Don’t dive into the riskiest stocks in the market and don’t shift all of your money into rollercoaster stocks in a “rip the Band-Aid” off approach. Work with your financial planner to determine the best investments for you to dip into the shallow end of the risky pool.

Do ask questions before investing

Your financial planner’s job is to help you, so ask, ask, ask questions until you feel comfortable with the money moves you’re making. Also, perform extensive research on the savings or investments you’re considering as part of your retirement portfolio.


Do not let your risk-aversion determine how you save

Don’t base your savings and investment decisions on your anxiety level. Your retirement portfolio should be made with sound judgment and based on your goals for retirement.

Do not watch your retirement portfolio everyday

Once you have a nice healthy mix of risk-averse savings and some risky (or minimal-risk) investments, you may be tempted to watch your portfolio every day. But don’t! The market can change from one day to the next, causing you to lose sight of the big picture.

Do not make hasty decisions based on the rise and falls of stocks

Retirement is a long-term process. If you notice pieces of your portfolio performing poorly, talk with your financial planner to get recommendations on how to safeguard your money. Moving money from one place to another at every sign of a dip can cause you to miss out on market increases.

Do not invest in only one thing—especially bonds

Some risk-averse people are tempted to put all of their savings into bonds. This is not only unwise, but can actually cause you to miss out on other opportunities. Bonds historically produce lower than average returns, which means your savings will not be able to keep up with market inflation.

Do not invest more than what you’re comfortable with

It’s important to invest and put into retirement savings money that you won’t need until retirement. Create a budget, calculate your bills, and make room for disposable income. Then, work with your financial planner to determine the percent of savings that works best for you.

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Being risk-averse just means you’re a more conscious saver, which can be a good thing. But, it doesn’t mean you’re relegated to savings bonds for your entire retirement portfolio. Following these tips will help you have a diversified portfolio that gives you a healthy dose of safe savings and other more aggressive investments—all without setting off any distress signals to your risk receptors.

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Ron GrensteinerPresident

Ron started his insurance career in 1985 as an agent with Northwestern Mutual Life and later served as regional vice president for American Life and Casualty, a subsidiary of The Statesman. Ron is also a Chartered Financial Consultant and a Char...

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