Retirees often want to know how to invest their retirement assets conservatively. They need a combination of income, security, liquidity and capital availability. Additionally, simplicity and predictability are prioritized. This article examines the broadest and best conservative retirement investments.
Please note that this article is not intended as personal financial advice. Retirees should work with a financial professional and do their own research to select the appropriate investments based on their needs and goals. Mr. Kiplinger simply wants to provide an overview of what is generally considered the best conservative investments for retirees.
Additionally, as retirees age, they need to evaluate what works and what doesn't, narrowing their investment choices over time so that simplicity and liquidity become top priorities. there is.
apply Kiplinger's personal finance
Become a smarter, more informed investor.
Up to 74% off
Sign up for Kiplinger's free e-newsletter
Profit and prosper with the best expert advice on investing, taxes, retirement, personal finance and more straight to your email.
Profit and prosper with the best expert advice straight to your email.
Overall, the safest investments for retirees tend to be a combination of: mutual fundsif you can index fundinvest in liquidity as well as stock and bond markets. money market funds (i.e. something that pays interest).
How to choose the best conservative retirement investments
Warren Buffett famously said that retirees should invest the majority of their assets. low cost ETF In other words, we employ an index strategy that reflects the performance of the 503 stocks included in the index.
Buffett reportedly said that investors should invest up to 90% of their assets in these cheap ETFs.in him 2013 Letter to Berkshire Hathaway Shareholders“The long-term results from this policy will be better than those achieved by most investors, whether pension funds, institutions or individuals, who employ high-fee managers,” he said. writing.
Some believe that 70% of stock market index funds is a better mix. The rest must be managed through a combination of bond funds, certificates of deposit (CDs), and money market funds. That could mean 20% in bond funds and 10% in CDs and money market funds.
The benefits of this type of conservative retirement investing include:
Stock index ETF Fees are low and all dividends collected from the underlying assets are paid out.not here capital gains tax This occurs until the stock is sold.
The S&P 500 currently has a dividend yield of 1.4%. Additionally, his 12-month total return (price change plus dividends) for the S&P 500 is 23%.
Additionally, investing in stock index funds has provided good results over the long term. For example, the average annual total return for the S&P 500 over the past 15 years has been 15%. Don't dress too dirty.
bond funds Investors typically receive lower returns than index funds, but they offer more peace of mind. To be sure, the bond market has had its fair share of volatility in recent years, but as Kiplinger contributor Jeff Reeves writes in a feature article, Best bond funds to buy“If you're retired or nearing retirement and capital preservation and income are your biggest concerns, you can't ignore bonds.”
Investors can also gain exposure to the bond market through the following methods: bond ETFlikewise tend to have lower expense ratios than comparable mutual funds.
Keep in mind that like stock funds, bond funds can fluctuate in price. Many investors are unaware of, for example: Interest level Bond prices can fall as they rise over time. However, bond prices and yields have an inverse relationship, so as prices fall, yields rise.
On the other hand, if the prevailing interest rate level begins to decline, the principal may increase, but investors may end up paying less monthly interest.
Certificate of Deposit (CD) This is another way to safely grow your retirement money, but the downside is that you have to tie up your money for the life of the certificate. Still, many CDs currently have yields well above 5%. for example, bank rate report some of that Best rates for CDs Currently it is in the 5% to 6% range.
Similarly, high interest rates can be obtained from a combination of: money market mutual funds.according to crane datathe 100 largest taxable money market funds tracked by the investment services firm, currently boast an average yield of 5.15%.
conclusion
The bottom line is that those looking for the best conservative retirement investments typically earn steady returns with index funds that cover the stock and bond markets. The theory here is simple. As funds are drawn down for retirees' liquidity needs, growth from investments in the stock market and to some extent bond funds can help offset these drawdowns.
Additionally, by holding a portion of their investments in semi-liquid and stable CDs and liquid money market funds (both of which pay interest), retirees can meet their monthly and daily financial needs. can. Over time, the proportion of liquid funds should increase for most retirees.
