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
GBP/USD extends losses below 1.2200 after UK Retail Sales data
GBP/USD has come under fresh selling pressure and accelerates decline below 1.2200 in Friday's European trading. The pair faces headwinds from the unexpected decline in the UK Retail Sales for December. Reusrgent US Dollar demand also weighs negatively on the pair.
EUR/USD keeps losses near 1.0300 as US Dollar rebounds
EUR/USD weakens to trade near 1.0300 in the early European session on Friday. The expectation of further rate cuts by the European Central Bank drags the Euro while the US Dollar finds its feet amid a cautious optimistic market mood. Mid-tier US data awaited.
Gold price moves away from one-month top amid renewed USD buying interest
Gold price edges lower on the last day of the week and for now, seems to have snapped a three-day winning streak to a one-month peak, around the $2,724-2,725 region touched on Thursday.
Bitcoin, Ethereum and Ripple show strength ahead of Trump’s inauguration
Bitcoin’s price continues to trade green, trading above $100,900 on Friday after rallying almost 7% so far this week. Ethereum and Ripple followed BTC’s footsteps and bounced after retesting key support levels earlier this week, all hinting at a rally ahead.
Eurozone industrial production ticked up in November
The slight 0.2% rise in production from October is insufficient to indicate a reversal of the two-year downward trend. Overall, the outlook for industry remains quite weak at the start of the year.
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