Most people dream about their retirement. You imagine yourself sipping wine, taking care of your garden, and playing bridge with your fellow pensioners. But the reality is somewhat different. Receiving less money than you used to can ignite the desire to become innovative. How to make money without going back to the working force? The answer is investing.
If you are interested in what do to with investments as a retiree, you need to know few key things. First, you need to develop an investment strategy. Research is essential for making smart and informative decisions. Next, you want to keep your investments diversified. The more diversified your investments are, the return will be safer. Lastly, you should keep your investments low-risk. Play it smart and stay safe.
Did this trigger your interest? To know more about the ins and outs of investing as a retiree just keep reading. Whether you are already familiar with investing, or you are a complete newbie, this information will help you make the right investment choices. So, let’s dive in!
Why Not Stick to Savings?
Why get into investing when you can keep your retirement money batch in a savings account?
This is a question that many ask. However, there is a bulletproof reason which explains why investing can be safer than storing your money in an account. That reason is inflation. I’ve actually written an article on inflation called ‘Investing To Beat Inflation: Here’s How‘, how it’s driven and how it impacts our money – definitely give that a read if you’re interested!
If you only stick to savings, inflation can decrease the value of your funds. The prices can go up and your savings won’t increase fast enough to keep up. When the inflation exceeds the interest you receive for your savings, it will seem as if you are losing the money, not earning it. This is why investing is a good solution for retirees.
In case you’ve been investing in your pre-retirement life and you’ve been hesitant whether to give it up—don’t. You’ve already got the hang of it, so continuing with your investment ventures is a tactical decision.
Staying Smart When Investing
The horror scenario that every retiree wants to avoid is losing their retirement money. If this fear is keeping you away from investing, let it go. You won’t lose a penny if you make smart investment decisions.
[Of course, you need to ensure you’re doing all of your own research – don’t make any life-altering decisions based on this post!]
Here are some golden rules when it comes to investing if you are retired:
1. Be moderate
When thinking about your ideal return, you want to stay realistic and moderate. Don’t let the incredible stories about high returns take you in the wrong direction. Consider your lifestyle and how much you need to lead a happy and fulfilled life as a retiree.
If the analysis shows that a 6% average return is a safe and profitable investment, listen to it. Making a high-risk investment that can bring you a 10% return can easily go downhill. Therefore, be moderate with your investment decision and go for a safer choice.
2. Consider your goals and timeline
Another key factor when it comes to investing is the goal and timeline combo. What is your ultimate goal and which timeline does it follow?
Do you want to pick the fruits after 5 years to buy yourself a new boat? Or, do you want to invest long-term to leave your grandchildren an eyebrow-lifting legacy? Think deeply about your objectives.
The time frame determines what type of investment you’ll make. Pulling out your money when the market is in the decrease will hurt your strategy. To preserve your capital and get a return, you need to align the type of investment with your goals.
3. Don’t go all in
Put aside what you need for your retirement and invest assets that won’t damage your financial security. You must keep in mind liquidity.
To make a well-calculated you need to separate your fund into “investment pile” and “retirement pile.” Use the first one for diversified investments and the second one for living your best life as a retiree.
The easiest way to make this division is to take these steps:
- Calculate your retirement income
- Count in your savings
- Calculate your retirement expenses
- Count in potential emergency expenses
- Deduct the expenses from the income and savings
- Consider the amount that’s left your investment pile
You don’t need to invest every “excess” pound you have. Nor, should you back off from investing if you don’t have a big “investment pile” ready to be distributed. The purpose of this whole math assignment is to show you that you need to be aware of your expenses before you rush into investing.
4. Diversify Your Investments
Investing all your money in a single bond or stock can be very risky. What if the company goes under? What will happen to your single investment? It won’t turn out well, I’ll tell you that. So, this is where diversification steps in.
Diversified investments act as a safety net. They will keep you in the game even if one asset, bond, stock, or company fails you. You don’t need to go out searching for different investments as some investments come in a diversified bundle. I’ve written an article called ‘Investing: Which Investments Don’t Lose You Money?‘ – this explains diversification in detail so give it a read if you want to find out more!
5. Do your research
Never invest without thoroughly researching your options first. For example, if you want to invest in stocks, you need to learn about the company’s financial situation, their performance, their management team, and so on. Or, if you are in the search for a certificate of deposit, go to different banks to learn about their terms and conditions.
Collecting relevant information is necessary for making an informative and responsible decision. You don’t want to invest in a company that’s on the verge of bankruptcy, don’t you?
In case the research process sounds unbearably tedious, hire a financial advisor. They can do the job for you and also advise you about your best investment options.
The Best Low-Risk Investments for Safe Retirement
If you want to stay on the safe side of the investment world, you want to aim for low-risk investment opportunities. They will help you generate income without putting your assets at risk.
Now, if you start researching what types of investments are out there, you can get lost in a labyrinth of options. What we’ll cover now are some low-risk, retirement-appropriate investments that you can consider.
Why low-risk? Because as we already discussed, you don’t want to expose yourself to too much risk. The goal is to grow your funds without losing any, right? So, we’ll deal with low-risk investments solely.
Here are some of the best low-risk investments a retiree could ask for:
1. REITs
REITs or Real Estate Investment Trusts are perfect for those who want to benefit from real estate without having to deal with mortgages and tenants. Equity REITs manage real estates such as buildings and malls and allow you to take part in it.
You can purchase REIT shares on security exchanges (directly) or through mutual funds (indirectly). One of the best parts about REITs is that they offer diversified bundles. You can purchase a bundle of commercial and/or residential real estate. That applies to any real estate in the world.
2. Bonds
You must have heard about bonds as an investment option. But how much do you actually know about them? Let’s make it clear what bonds are and why retirees should invest in them.
Bonds are in fact debt that companies or government entities issue as tradable assets. When you buy a bond, this means that a company, for example, owes you and they pay interest to you for holding it.
The safest bonds are bonds issued by government agencies, the federal government, or financially stable corporations. However, you want to aim for a diversified portfolio of bonds. Building a portfolio of different maturities is the smartest approach.
You can also build a diversified portfolio of both bonds and stocks. This leads us to the next low-risk investment—stocks.
3. Dividend-Paying Stocks
Stocks present ownership in a corporation. If you buy dividend-paying stocks, you’ll receive dividends or payment at an agreed time (for example every quarter).
To simplify this to the core, with stocks you’ll invest in a company (through stocks) and a company will pay you (in the form of dividends) for putting your money in their business.
For dividend-paying stocks to be low-risk, you need to do your research. Look into the company’s history when it comes to stocks and paying dividends. Target financially stable companies that regularly pay dividends to their stockholders. Again – I’ve got a great article called ‘When Do Investments Pay Dividends – Your Complete Guide‘ which covers this topic very well. https://breakingthe925.co.uk/when-do-investments-pay-dividends-your-complete-guide/
Again, you can diversify your portfolio of stocks. You can own stocks from different companies in different industries and different countries.
4. Certificate of Deposit (CD)
Known to be one of the safest investment methods, a certificate of deposit (CD) must reserve a place on this list.
With CDs, you’ll put your money in a bank and the bank will pay you interest for keeping (or better said using) your money. The CDs are placed in a bank for a fixed period of time and typically you should receive fixed interest. So, when 2, 5, or 10 years pass, you’ll receive the amount you invested plus the accumulated interest.
What can now confuse you is the similarity between CD and a savings account. However, there are two key differences—liquidity and interest.
CDs give you a higher interest rate but without the ability to withdraw your money. On the other hand, you get a lower interest with a savings account but your funds stay liquid as you can withdraw them whenever you wish.
So, if you are ready to make a long-term commitment it’s better that you opt for CDs. The risk is low and the return is higher compared to a savings account.
How to Choose the Right Investment for You?
There is no formula that will lead you to the ideal investment. Your investing path depends on what you want, when you want to withdraw funds, and what type of investment seems the most promising at that time.
To make the right choice, you should stick to the smart investment tips mentioned above. So, after you determine your goals and do your research, you’ll have a better idea of what are your best opportunities. You can always consult an expert before you finalise your decision.
Overall, you should take your time and never ever make an impulsive investment.
Common Mistakes You Need to Avoid
Making mistakes is a part of life. No one can pass unscratched from a mistake or two. However, when it comes to investing as a retiree, you don’t want to go in head first. You should learn from other people’s mistakes in order not to make them yourself.
I present to you some of the most common investment mistakes that you should stay away from:
- Being a man without a plan – Investment isn’t something you should do on a whim. There are many factors to consider and you should plan it all out before you become an investor.
- Making an investment solely based on a recommendation – Even if a friend told you that you should buy some stocks or bonds, do your research anyway. Don’t take advice from anyone who isn’t an investment expert.
- Having big expectations for small investments – You need to keep your expectations realistic. You can hardly become a millionaire if you don’t take big risks. Low-risk investments come with a medium but secure return.
- Forgetting about the risk – Low-risk investments still come with risk—bear that in mind. Nothing can give you a 100% guarantee for your investment. So, always invest with an awareness that a dose of risk exists.
It’s Never Too Late to Transform Into an Investor
The fact that you are retired shouldn’t stop you from investing. It should be a motivator to make wise investment choices and grow your funds.
If you’re want to learn more about investing – aside from reading everything in the ‘Investing’ section of this blog, go ahead and read some investing books! I’ve got a good list of recommended books which has taught me a lot about investments and personal finance in general.
Adding “an investor” to your list of roles can help you accomplish a life-long dream. Whether you want to have enough money to buy a summer house or buying your grandkid a car, investing can get you there. Just keep it smart!