How Your Retirement Investments Should Change As You Age

Change is the only constant in life according to the Greek philosopher Heraclitus. That saying is as true today as it was in around 500 BC when he said it.

Because the world is constantly changing, it forces us to make changes in our lives in order to keep up. For example, one thing you should consider is how your retirement investments should change as you age.

Investing always carries with it a certain amount of risk. However, when you are young you have time on your side. While diversity is still important, the more money you put into higher risk investments while you are still young, the greater returns you will generally see. You can put your money into an investment plan and watch it grow by choosing higher risk funds, because any lows or losses you will see can probably be made up over time simply because you have plenty of investment years left ahead of you.

However, as the years pass, changes in your life have most likely occurred. You may or may not have children who are well on their way to becoming adults themselves, so there’s college to think about paying for. Or, you could experience divorce, career changes, aging parents, and many other scenarios that drastically affect your current finances as well as your finances into the future. It’s a good idea to take stock of what’s happening and how it affects you financially.

You need to look at how your money is invested. Experts agree that you need to begin decreasing your high risk investments and increasing your lower risk investments as you near retirement age.

For example, as you age, you might want to change your portfolio to be made up of more bonds than stocks as bonds are generally considered to be a safer investment than stocks.

Another option to help you with your investments as you age is a target date retirement fund. You can choose a fund with a future retirement date in mind and the mix of stocks, bonds, and cash will automatically be adjusted for you to maximize returns and minimize risks. Overall, the mix will become less risky as you age and the date of your fund approaches. This could be a good option for you if you like to take a “hands off” approach to your investing.

Another example of a “hands off” approach to investing is by using a robo-advisor, like Betterment. Robo-advisors use a computer algorithm based on your risk assessment and goals to help you choose ETFs that fit your specific goals. Their strategy is very “buy and hold” focused instead of actively trading stocks. Robo-advisors also tend to have lower costs associated with your investment accounts than working with a financial advisor.

Investing as you approach your retirement years can be tricky. If you already have investments, reallocating your funds so that you have a healthy percentage in bonds as well as a small percentage in stocks is a good idea according to experts. However, if you’re a new investor and haven’t been investing previously, you may want to consider higher risk investments. If you are confused or are unsure, consulting a professional may be of help.

Change in life is inevitable. How your retirement investments should change as you age just is just as important as how your needs change over time.