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Creating an Investment Strategy

When deciding how much to invest in different types of investments such as bonds and stocks, think about what level of investment risk is acceptable to you for the return you expect to receive. Two important questions can help you decide how conservative, moderate, or aggressive you may wish to be when investing:

Retirement Investment Time Horizon
How long do you expect to live? Today, the average American male who reaches age 65 can expect to live to age 81, the average female to age 84. You may want to consider how long your relatives have lived. If you have relatives living well into their nineties, you may want to plan for a life span longer than average.

Generally, the longer your money remains invested, the more risk you can afford to take. Short-term investors generally need to protect their principal from even short-term risk. Long-term investors don't need to worry as much about short-term risk. If you are close to retirement age, but expect to live longer than the average life span, you might want to invest a portion of your savings with a long-term horizon. Historically, more risk translates to more return over long periods of time.

Risk Tolerance
How do you react to investment risk? Would you rather have consistent returns, or the expectation of faster growth? As you approach retirement, take into consideration any stable sources of retirement income, such as Social Security payments, or other pension benefit payments. With these sources of relatively stable income, you may be comfortable being a little more aggressive in investing your retirement savings.

Managing Your Investments -- Variable Annuities  Model Portfolios for Those Nearing Retirement