6/14/2011 12:10 PM ET|
5 investing rules for retirement
The last thing you'll want to do during retirement is worry about money. Following these tried-and-true rules can help keep you financially secure as you age.
Many things have changed over the last 50 years, but at least one thing hasn't: We all want a carefree retirement. You will have a much better chance of attaining a secure retirement if you make appropriate investments. Here are five time-tested investment rules that will help you prepare for retirement.
1. Investing isn't all about returns
People invest to satisfy a combination of three needs: shorter-term liquidity needs, longer-term income needs and security blanket needs. Not everyone needs to have the same amount allocated to each need.
You might need 10% of your money for short-term liquidity, while your neighbor needs 40%. Likewise, you might need 25% of your money invested in accounts insured by the Federal Deposit Insurance Corp. to provide for a sense of security, while your sister might need only 10%. (Are you saving enough for retirement? Use MSN Money's calculator to find out.)
Instead of worrying about finding the best-performing mutual funds or the best checking accounts, get a clear idea of how much you need in each of these three buckets first. Then look for the best investments within those buckets.
2. Understand your time frame
When you make your investment decisions, pay attention to your time frame. When you have a long investment time frame, it doesn't matter what happens over the short term. But investors often make decisions to avoid short-term volatility when they should do just the opposite.
For example, if you are 65 and want to invest to create income, you probably want that income to last for the rest of your life. Healthy individuals in their 60s should probably make investment decisions with at least a 20-year time frame in mind. When you're looking for long-term income, you need to make long-term investments.
3. Safeguard your nest egg from your children
We all want to help our children, but be careful when supporting adult children financially. When they come to you for a business loan, think it over carefully. Many children don't repay loans if they have borrowed money from their parents. If you can afford to give your children a financial gift, that's a wonderful way to help them. But if you can't afford to give that money away, think twice before you make a loan to your children.
4. Budget tracking is essential
Tracking what you spend is crucial to your financial future. While your income may be fixed, your spending isn't. If you track your spending and you keep it reasonable, you won't be tempted to make risky investments that promise high returns. You simply won't need to take a lot of risk. In addition, you'll be better able to stay out of debt and keep a good credit score by implementing budget tracking.
5. Think about your team
Even if you make your own investment decisions now, you may not always be able to do so. And if you're not around, your spouse may need someone to take over. Baseball teams hire relief pitchers before they need them, just in case. You need a relief pitcher, too. Either groom someone in your family or find a professional to rely on. Find someone before you need the help, because by the time you have a need it will be too late.
This article was reported by Neal Frankle for U.S. News & World Report.
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