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According to experts, nearly a quarter of people investing for their retirement are over-exposing themselves to risk, especially those the closest to retirement age. Here’s what you need to know about limiting your exposure.
According to research from the experts at Fidelity, in 2021, 24.2% of all employees invested in workplace retirement accounts are overexposed, with too much of their money invested in high-risk assets.
Further, USA Today reported that the group most likely to have the wrong mix of assets is the baby boomer generation.
The research found that nearly one in four employees had more stock in their portfolio than was recommended. While stocks present the potential of higher returns, they also come with a higher risk of loss than other types of investment.
The problem with older investors allocating too much of their portfolio to high-risk investments, such as stocks, is this: The closer you are to retirement, the fewer working years you have left to recover from loss. Older workers who lose the bulk of their portfolio on a lousy investment may not have enough working years left to earn money back. Depending on how significant the losses are, they may be forced to postpone retirement in order to keep working and replenish their nest egg. Sadly, some may not have that opportunity or won’t be able to replace what they’ve lost.
As a general rule, the experts at the Motley Fool, advise a portfolio mixture of 60/40, with 60% invested in stocks, with the remaining 40% allocated to safer, fixed-income investments such as bonds.
Some argue that the youngest of workers can risk a higher percentage on stocks, but that’s another article.
However, with few working years left, baby boomers need to play it much safer. Those nearing retirement age should consider this formula:
Older workers should subtract their age from 110 and invest that percentage of the portfolio into equities (stocks) while putting the rest of their investment dollars into other, safer investments such as bonds.
Example: Let’s say you are 62 years old and plan to work until your full retirement age of 67 years.
110 – 60 = 48.
You can invest 48% of your investment dollars in stocks and the other 52 percent in bonds, CDs, and high-yield savings accounts (to leave available cash for a few years of living expenses or if the market crashes).
