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4 Examples of Well-Diversified Retirement Portfolios
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Last Updated on: 20th August 2014, 05:33 am
You heard the terms “diversification” and “asset allocation” more than you can handle, and are dying to see some practical examples of what a truly diversified retirement portfolio should look like? Keep reading, this post is for you.
Saving for retirement may seem like a simple and straightforward goal for some, but when you're trying to make the most of your assets and income opportunities there are no “one-size-fits-all” schemes that will provide optimal results.
Of course, while it is always a good idea to put your savings to good use by continually allocating funds towards a broad range of investments, not all portfolios are ideal for a retirement-oriented investment strategy.
The key to protecting your lifelong savings, while also making your money grow at a steady pace, is to diversify investments to such an extent that one or even several mishaps or shortcomings will not result in a substantial loss. As the old saying goes, “don't put all of your eggs in one basket.”
Taking Control of Your Retirement Savings
There are two main types of investments to consider – those that will generate fixed income, and those that will slowly build and/or protect your savings. For the best results you'll want to decide on a percentage-based portfolio scheme that factors in your tolerance for risk, available capital, and retirement goals.
But not a lot of people are willing to track and manage their own portfolios, which is why managed investment funds and preset portfolio structures are recommended to steer busy pre-retirement investors on the right path.
Independently constructing a diversified retirement portfolio from scratch and having it perform well over long periods of time with minimal maintenance is not an easy task, especially when you're not familiar with the esoteric investment lingo that can make researching the topic discouragingly difficult.
Fortunately, we've drastically simplified the process for you by providing the top 4 examples of well-diversified retirement portfolios:
Example #1 – The ‘Safety First' Portfolio (Conservative)
We recommend this option for retirement investors who want to play it as safe as possible while on the verge of retirement. While this portfolio may seem as though it's not that diverse, it actually doesn't need to be, because the few investments that it contains are very low risk and can help you protect and extend your retirement savings.
Furthermore, the simplicity of it makes it less confusing and more welcoming to inexperienced, cautious investors. The ‘Safety First' portfolio is based on bonds/securities and annuities that provide predictable, inflation-adjusted income, with the rest of the portfolio being devoted to precious metals.
With this portfolio you'll have the security of knowing that you'll be earning X amount of money every month, and you'll have X amount of money stored in gold or other precious metals as a backup.
Pie Chart of the ‘Safety First' Portfolio:
Learn more about the two types of investments mentioned above.
Example #2 – The ‘Income Generator' Portfolio (Moderate)
The ‘Income Generator' portfolio can help provide retirees with a larger fixed income to supplement their Social Security provisions. Because it is designed to create multiple income streams, this portfolio is perhaps the most diverse of all our recommendations.
Although the other portfolios we've recommended also generate fixed income, this structure can create a stable and comfortable ongoing return, and is particularly beneficial for individuals who already have more than $500,000 set aside for retirement.
By capitalizing on CD ladders, a diversified selection of stocks, fixed annuities, and bond funds, the Income Generator puts you in a great position to gradually build wealth and setup income streams while approaching and entering into retirement.
Pie Chart of the ‘Income Generator' Portfolio:
Learn more about generating income with a $500,000 retirement savings.
Example #3 – The ‘Profit Maximizer' Portfolio (Aggressive)
The ‘Profit Maximizer' portfolio template is recommended for individuals who are 15 years or more away from retirement, don't yet need to generate a fixed income using their investments, and have a high risk tolerance.
A portfolio like this could generate an average annual return of about 10%, but on a good year that return could jump to as high as a 40-50%. As retirement gets closer you'll probably want to switch to a more conservative plan.
Pie Chart of the ‘Profit Maximizer' Portfolio:
Example #4 – The ‘Home Stretch' Portfolio (Moderately Conservative)
This is an ideal portfolio to use when you're coming down the “home stretch” – the last 5 years before your retirement, yet you still want to bulk up your retirement savings as much as possible without risking too much.
The ‘Home Stretch' portfolio puts you in a position to begin setting up your fixed income streams that you'll need once you retire, while also leaving some of your funds allocated towards potentially profitable investments that could boost your overall savings.
Pie Chart of the ‘Home Stretch' Portfolio
Gradually Changing Your Portfolio from Moderate to Conservative
Keep in mind that the above portfolio recommendations are not intended to be exact blueprints. Instead, feel free to switch between portfolio structures depending on how close you are to retirement, how much money you can afford to invest, economic circumstances, and whether your current priority is “maximum profits” or “maximum protection.”
Most investors recommend shifting your portfolio from moderate (at 10 years from retirement), to moderately conservative (just before or after entering retirement), and then finally to fully conservative (during the height of your retirement).
For example's sake, a moderate portfolio would contain about 60% stocks and 40% bonds/cash/precious metals, whereas a moderately conservative portfolio would contain about 40% stocks and 60% bonds/cash/precious metals, and a conservative portfolio would only contain about 20% stocks and 80% bonds/cash/precious metals.
However, you shouldn't make these shifts suddenly – they should be implemented over time in combination with thorough research and the help of a qualified financial adviser.
The Importance of Including Precious Metals
You'll notice that in all of the above recommendations we've suggested allocating a minimum of 5-20% of your savings towards precious metals, regardless of which portfolio you choose. In times of financial uncertainty (i.e. – on the verge of a major currency collapse or devaluation), the wisest course of action would be to convert all or most of your cash holdings and other valuable assets into gold or other historically valuable precious metals like silver, platinum, and palladium. This will ensure that value is preserved even in the harshest economic environments.
One of the best ways to manage a highly diverse retirement portfolio in a centralized manner, while also investing in physical precious metals, is to open a self-directed individual retirement account (IRA). The global financial crisis of 2008, and the recession that followed, caused many retirement investors to switch to gold, leading to the recent popularity of what are now commonly referred to as “Gold IRAs” – IRAs in which most of the stored and managed assets are physical gold bars or bullion.
Rolling your 401k into a Gold IRA is by far the best way to protect your savings and profit off of the continually rising demand for gold and other precious metals. This option is especially ideal if you expect to retire within the next 5-10 years, as it keeps inflation and other economic factors from devaluing your hard-earned retirement savings.