People might say saving for retirement isn’t simple. Many consider mutual funds to be the solution, but how can you make it stress-free? Mutual funds are a reliable, systematic way to invest in retirement planning. However, with countless mutual funds to choose from, finding the right one can appear to be a daunting task.
Some simplify the process by investing through a workplace retirement plan like a 401(k) but aren’t happy, as they are left with fewer choices. Few may be seen scratching their head as they are left alone with many seemingly good plans. Is saving for retirement really that complicated? Well, not really. You can make an informed choice with a handful of mutual funds for retirement with a smart, diversified investment portfolio. You can diversify your portfolio and save for your golden years in the following ways.
Diversify
When you invest in several companies that are of different industries and in other places, your investments are diversified. This is essential to be successful in investing. Intentionally investing that way would keep you safe even if one of the industries have a downfall. In fact, you’re completely secure; the bond part of your portfolio would sustain you when stocks are in free fall.
We’re pretty sure you would know what mutual funds are. A mutual fund is a company that combines money from numerous investors and invests them in securities. And the design of mutual funds is simple. They invest in companies so that individuals could have shares in several companies, mainly through a single fund. Thus, with that, you can own a broadly diversified investment portfolio even if you have few mutual funds for retirement.
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What are lazy portfolios?
If you have decided to diversify your portfolio by investing in mutual funds for retirement, it’s time to narrow down the funds that would be the best for you. If you plan to hold the investments for the long term, you could try recreating your 401(k) with what finance experts call “lazy portfolios”. Interestingly, you don’t have to recreate it only in your individual retirement account. You can spread your recreated lazy portfolio in every account, by investing each mutual fund in separate accounts. And there is another advantage: you can build your portfolio using similar funds from other mutual fund companies. Now that’s one way to make saving for retirement a stress-free exercise.
Strong foundations
You would have seen that a portfolio invested in an Exchange Traded fund (ETF) and the bond market earns less than a portfolio invested in stock funds. Many people, however, invest in ETF and bond markets because merely investing in a stock fund leaves you unguarded during a financial crisis. At the same time, if you have a portfolio that is diversified like a two-fund portfolio, it’s impossible to leave the fray during a financial crisis. Thus, you have a more secured portfolio than a portfolio invested only in stock funds.
If you have a diversified portfolio already, you can add two other asset classes: real estate and Treasury Inflation-Protected Securities (TIPS). Suppose your portfolio has 70% stocks and 30% bonds, you can add 20% of your portfolio into a total bond market mutual fund and 10% into a TIPS fund. And for stocks. you could make it 55% global stock fund and 15% real estate investment trust fund,
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Don’t forget the miscellaneous expenses
Moreover, you should not ignore the fact that you’ll have to pay the fees for any fund. Make sure to pick mutual funds that are inexpensive. If the expense ratio is 1% or more, it is an expensive plan. There are several funds that charge less; research until you find them. Once you’ve created your lazy portfolio, you can be lazy; as in, you can relax.
Anyways, you don’t have to worry if you feel this isn’t possible for you right now. Robo-advisors offer a low-cost solution to a balanced, and importantly, diversified portfolio. You can also invest in a single fund — it would be considered a balanced index fund or a target-date retirement fund. In this case, you would get a relatively unbalanced, diversified portfolio for now. Nevertheless, you would be able to rebalance it after some time, eventually.
