By Rakesh Shah
“No matter how carefully you prepare for retirement during your working life, it is still important to manage your investments and maintain control over your income.”
Retirees often create obstacles for their investment plan, simply through their own behavioural approach to investment decisions. While it is impossible for a comprehensive investment guide to apply to every individual, there are a few strategies that can help you overcome your personal obstacles to investment success!
Think long-term, not short term
Many investors tend to think in the short term, so they either expect instant wealth or they are constantly nervous when the price of their investment drops slightly. However, short term changes are not a good indication of long term returns. It is almost impossible to predict market fluctuations, and it can be costly and exhausting to respond to all the shifts in the market.
Establish some long term goals relating to what you want to achieve from your investments throughout your retirement – this will help divert you from reacting to short term fluctuations.
Diversify your portfolio
It can feel safer to stick with the investment strategy you know, whether it is real estate, shares or stocks, but you can maximize your return by diversifying your investments into different sectors.
While this is not a guarantee against loss, each different sector will react differently to a specific market event, giving you a stronger chance of achieving your long term goals.
Understand the difference between “saving” and “investing”
Saving money is the act of regularly setting aside a certain amount from your income. It basically involves living within your means, while accumulating a nest egg for later. This is the cornerstone of successful money management.
Investment takes your savings a little further by building up interest, although there is also a higher level of risk involved. When you are retired and no longer earning, you want your investments to start creating income for you. You might feel safer keeping your nest egg in a secure high interest bank account, but this strategy severely limits your financial possibilities. For example, if you have an emergency that cuts into your savings, your long term income will also be compromised.
Ideally, you should eventually reach a point where your investment return is higher than your regular contributions – this is when you can see that your investments are earning money for you.
Assess the costs of your investments
When you set out to make an income through investments, don’t forget to keep track of the costs involved, as fees and tax costs can cut into your investment profits. Make sure that any potential costs are clearly outlined upfront before you decide on a certain investment opportunity.
Rely on expert advice
A qualified professional financial adviser can help you create an investment plan that suits your temperament and your long term goals. Your investment plan can consolidate your retirement income while providing an extra layer of long term financial support.
While you may rely on guesswork or good luck to navigate your investments, your financial adviser has the experience and judgement to plot a financial course that is right for you. This in turn gives you valuable peace of mind, as you will have more confidence in your overall strategy, and you can rely on an expert to modify the plan if your circumstances change.
While you may not have the expertise to create the right investment plan for your needs, you can count on a financial adviser to steer you in the right direction, boosting your retirement income and your security.
If you would like a second opinion on your retirement plan, email Rakesh or call 6163 6107.
Rakesh Shah is a Certified Financial Planner working in Perth, Australia. Rakesh specialises in retirement planning and helping people make the most of their retirement.