Thursday 4 April 2013

10 Ways to Fix your Retirement Planning Mistakes


Some investors make radical mistakes that threaten their long-term retirement plan. (Think about all those Enron employees who invested their money in company stock.) Fortunately, no mistake has to put you out of the game for good. The following tips can help investors recover from portfolio mistakes in time to revitalize their retirement plans.
1. Reconsider Your Retirement Age. Some people are stubbornly determined to retire at a particular age. But if you've made an investment mistake, you may not be able to retire at exactly the time you'd chosen. If you truly want to retire with security, you may have to work longer than you'd planned, for example, until age 68 instead of 65.
2. Fine-Tune Your Retirement Goals. Initially, the purpose of your retirement portfolio might have been to improve your current standard of living and maintain it for the rest of your life. But after taking a hit to the portfolio, you may want to redefine those goals. Be realistic in re-evaluating your portfolio's purpose. You might have to accept a dip in the standard of living you'd like your portfolio to support, but making that compromise is better than continuing to believe in an unrealistic, and even more disappointing, scenario.
3. Diversify Your Retirement Investments. Many portfolio mistakes are the result of a gambling mentality that leads the investor to sink too much money into a single investment or stock. Although some people do get lucky this way, don't push it. Take the time and effort to construct a balanced portfolio that reduces your exposure to any one risk. If all of your money is in a high-risk, small-cap mutual fund, for example, you might want to offset that volatility by putting some of that money into a more stable vehicle like a money-market fund. The yields will be considerably less, but so will the risk.
4. Establish Guaranteed Recurring Income. You can ease some of the uncertainty generated by your portfolio mistakes by setting up low-yield but high-predictability recurring investments such as certificates of deposit.
5. Seek Qualified Help. Don't hesitate to seek out a certified financial planner who can help you construct a portfolio. CFPs are certified professionals whose credentials and track record are available for your inspection. 
6. Reduce Expenses Before Retirement. Remember, you can accumulate money not only by making it but also by saving it. If you're coming off a big investment loss, find ways to reduce your expenditures immediately. Create a streamlined budget and find ways to spend less money - delaying large purchases like a new car, or not taking an expensive vacation, for example. The money you save can not only pay your cost of living but also serve as a fund for savings and investments.
7. Watch the Cost of Investment. If you invest in mutual funds, try to pick funds that don't incur extra costs, or "loads". Similarly, regardless of the investment instrument, read the fine print to make certain that you aren't paying someone simply for the privilege of investing. Instead, stick with passively managed investments such as no-load index funds.
8. Max Out Your ARS. If you've never contributed to an employer- or self-provided ARS, start now. Traditional ARSs allow you to sock away money for your retirement tax-free until withdrawal.
9. Get Support. Watching your portfolio dwindle in value or disappear, especially after you've spent years working to grow it, is very stressful. In addition to taking proactive steps to revive your portfolio, it's a good idea to revive your well-being. Join a support group, spend more time with friends and family, improve your diet, get more exercise - these activities sound unrelated, but they'll help give you the patience and optimism needed to renew your investment activities after a disappointment.
10. Try Other Ways to Create Wealth. Investing in a traditional portfolio is not the only way to achieve this goal. If you're particularly concerned about bringing in additional money to save or invest, you might want to consider putting your professional experience to work for you by freelancing or consulting in addition to your full-time job.

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