Risk and time horizon
As an investor, your approach to risk will depend on many factors, including your time horizon. For example, if your investment time horizon is a relatively short period – for example, a decade or less – you will have less room for growth-focused investment than if your time horizon is two or more decades.
This is because growth-focused investments are more likely to be subject to fluctuations in value caused by the volatilities of the market and there will be less time to recover. In contrast, income-based investments such as fixed income securities will be more likely to offer a stable and consistent level of income.
However, it is worth questioning your own understanding of risk, as there are many different kinds. It is very well steering clear of market volatility by eschewing growth-focused securities in favour of fixed income products, but if you take this conservative approach you risk failing to accrue sufficient capital to fund your required standard of living for the duration of your retirement.
Finding the right mix of investments
All investment requires finding the right balance between the potential for growth and the need to protect your existing level of wealth. However, there are many factors to consider when striking this balance. These include: the impact of inflation on your spending power; the length of your time horizon; your desired lifestyle and its cost; your potential medical and care costs; and any desire you might have to leave a legacy for beneficiaries.
Sitting down with your financial advisor at the earliest opportunity to decide upon a long-term retirement and pension planning strategy is always going to be the best way to address your needs. However, for those who come late to this process, a growth-oriented strategy may not always be the best route. Below we take a look at some of the options available to retirement savers in this situation.
Income-producing investments
If you have a relatively short investment time horizon, you may have reservations about investing in the market. Many in this situation choose to invest in annuities, or fixed interest securities and bonds because of their relative stability and capacity to consistently and reliably provide income.
However, if you have any concerns about running out of money or maintaining your purchasing power during your retirement, you should remember that these products and vehicles may produce only modest returns.
The following may present alternative options:
- Dividend-producing stocks can work for retirees in some situations but these also come with a number of caveats; not least the fact that share prices may fall in value at a level equivalent to the dividend being paid.
- Retirement Income Funds offer investors the ability to keep control of their principal through a specialized mutual fund which allocates your investment across a diverse selection of stocks and bonds; managed to produce monthly income, each fund will be designed to achieve a specific objective.
- Real Estate Investment Trusts (REITs) are similar to Retirement Income Funds but solely invested in property. They will produce rental or lease income and, potentially, considerable dividends; however, the returns are not always predictable and can be offset by significant maintenance, tax and repair costs.
Of course, settling on the investment strategy that will best suit your personal circumstances and objectives will depend on many factors which will need to be analysed thoroughly before you make any decisions.
Find the right strategy for your retirement
Whatever the length of your investment time horizon and wherever in the world you may originally hail from, if you have US financial interests, we can help you protect and grow your wealth in the way that aligns with your interests.
Our clients include those who reside in the US as well as those who have dual citizenship and we provide advice and services in relation to IRAs, 401(k)s, 403(b)s in the US and the management of UK pension funds in the US. Contact us today so that we can help you successfully plan for your retirement.
Disclaimer: The provision of information in this communication is not based on your individual circumstances and does not constitute investment advice. Blacktower makes no recommendation as to the suitability of any of the products or transactions mentioned.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.