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Investing In Retirement: 6 Lower-Risk Options to Add to Your Portfolio

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If you’re planning for your retirement investments, it’s crucial to exercise caution.

As you embrace your well-deserved retirement, the last thing you’d want is to encounter a significant financial setback that could threaten your comfortable lifestyle and potentially push you back into the daily grind of a 9-to-5 job. To address this concern, we’ve put together a selection of low-risk investment choices that you can consider adding to your portfolio. These options will help your nest egg continue to grow without the constant worry of losing it all.

Investing in Retirement? Here Are 6 Lower-Risk Options to Add to Your Portfolio 

1. Bonds 

Put plainly, bonds are financial instruments that organizations use to raise capital by borrowing money. In exchange, these organizations commit to providing you with regular interest payments while the bond remains outstanding. When the bond reaches its maturity date, you receive the bond’s full face value. The expected return rate on bonds varies depending on factors like the type of bond and its duration, typically ranging between 2% and 6%.

When you contrast bonds with other commonly chosen investment avenues like stocks, one striking feature is their notably lower volatility. This means they are less prone to substantial value swings. The reason behind this is quite simple: Bonds do not grant you ownership stakes, unlike stocks. In other words, while you won’t enjoy gains when the organization prospers, you also won’t experience as severe financial losses when the organization’s performance falters.

Among the most frequently encountered bond categories are corporate bonds, municipal bonds, and treasury bonds.

Corporate Bonds. Corporate bonds are financial instruments employed by companies to secure funding for various endeavors, such as expansion or research initiatives. While they typically yield higher returns in comparison to government bonds, they are accompanied by an elevated level of risk due to the greater likelihood of companies failing to meet their debt obligations.

Municipal bonds. As the name implies, municipal bonds are issued by state and local governments and are frequently utilized to finance vital infrastructure projects, including the building of schools and hospitals.

Treasury bonds. Treasury bonds, issued by the U.S. government to bolster public expenditures, are widely regarded as one of the safest investment choices due to the minimal risk of government default. They often serve as a dependable income source for retirees. Nevertheless, because of their low-risk profile, treasury bonds generally offer lower yields compared to corporate or municipal bonds.

Before delving into bond investments, it’s crucial to take into account various factors, including interest rates, credit ratings, and the bond’s maturity period. By assembling a blend of different bond types to diversify your investment portfolio, you can formulate a low-risk investment strategy that ensures dependable income during your retirement years. Bonds can typically be acquired through a broker, an ETF (Exchange-Traded Fund), or directly from the U.S. government via TreasuryDirect, depending on your preferred type of bond investment.

2. Publicly Traded REIT Index Funds

According to R.J. Weiss, a certified financial planner and the founder of the personal finance website, The Ways to Wealth, another prudent retirement investment option to consider is high-quality Real Estate Investment Trusts (REITs) or REIT index funds that focus on substantial real estate properties. REITs are legally mandated to distribute 90% of their yearly income to investors in the form of dividends, making them one of the market’s highest-yielding options, with expected returns ranging from 3% to 6%.

Nonetheless, Weiss points out that REITs may be sensitive to changes in interest rates because economic fluctuations and market risks can affect property values and rental income.

Despite these potential risks, REITs remain a safer investment choice compared to conventional stocks, primarily due to their lower volatility and substantial dividend payouts.

3. High-Interest Savings Accounts

If you possess an exceptionally low tolerance for risk and prefer to avoid the stock market, you might contemplate opening a high-interest savings account. For instance, Ally Bank currently provides a high-yield savings account with a 3.75% APY.

By stashing your surplus funds in high-yield savings accounts instead of a standard checking account, you can shield your purchasing power from the erosive effects of inflation during your retirement years. Furthermore, most high-yield savings accounts offer convenient access to your funds and come with FDIC insurance coverage of up to $250,000.

To discover the most advantageous option, take the time to compare various offerings and remain attentive to promotional deals from different financial institutions. Explore our recommendations for the top high-yield savings accounts to begin your search.

4. Treasury Inflation-Protected Securities

Treasury Inflation-Protected Securities, commonly known as TIPS, represent a category of U.S. government treasury bonds specially designed to shield against the impact of inflation. The principal value of TIPS is linked to inflation, ensuring that it adjusts in response to rising prices.

To illustrate, if your initial principal is $2,000, and the Consumer Price Index indicates an inflation rate of 3.5%, your new principal will be $2,070. Correspondingly, your interest payment will be calculated based on this adjusted amount.

Upon the bond’s maturity, you will receive either the inflation-adjusted principal value or the original principal, whichever is higher. If your goal is to safeguard your investments from the eroding effects of inflation, Treasury Inflation-Protected Securities are a worthwhile consideration.

TIPS come in various maturities, including five, ten, and thirty years, and they provide semi-annual cash interest payments. You can acquire them through your investment brokerage account or by visiting the U.S. Treasury Department’s website at TreasuryDirect.

5. Preferred Stocks

Another avenue worth considering for low-risk investments during retirement is preferred stock. This asset class combines features of both bonds and traditional stocks, offering investors a reliable stream of income while retaining ownership privileges.

Although not assured, preferred stock dividends take precedence over those of common stock. This prioritization extends even in the event of a company’s bankruptcy, where preferred shareholders are compensated before common stockholders.

Moreover, preferred shares typically yield higher regular dividends, typically ranging from 5% to 7%. Acquiring preferred stocks follows a process similar to that of common stocks, often involving online brokerage platforms or investing apps.

6. Certificates of Deposits (CDs)

A Certificate of Deposit, commonly known as a CD, is a savings account offered by some banks and credit unions. Here’s how it operates:

When you open a CD account, you commit to leaving your funds in it for a specified duration, which can range from a few months to several years. In return, the financial institution offers you a higher interest rate compared to what you’d typically receive with a regular savings account. Furthermore, when compared to stocks or other investment choices, CDs are relatively secure because your money is securely held by the bank.

However, there’s a caveat: When you invest in a CD, your funds are locked in for the entire agreed-upon term. Therefore, it’s advisable to consider depositing your money into a CD account only if you are absolutely certain that you won’t need those funds during your retirement years.

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