Should You Have an Aggressive Portfolio During Retirement?

There’s no doubt that a solid financial plan is essential to living comfortably and without stress in retirement. Investing your money wisely is a key component. As we reach life’s important milestones, our investment strategies often need to change to meet our shifting needs and priorities. You may have heard that you should sell your stocks and start buying bonds as you reach retirement age in order to limit risk. But this isn’t the whole story.

Your retirement portfolio should be customized to your specific situation, needs, and preferences. While it’s important to take steps to mitigate risk as you enjoy retirement, some retirees choose to pursue a more aggressive strategy using a portion of their funds.

In this article, our experienced CERTIFIED FINANCIAL PLANNER™ professionals at Chatterton & Associates are here to discuss what it means to have an aggressive portfolio in retirement and help you determine whether this is a possibility for you.

What is an Aggressive Portfolio?

There’s no one definition of an aggressive portfolio. But in general, an aggressive investment strategy is one that prioritizes maximizing returns by taking on a relatively high level of risk. Aggressive portfolios generally contain investments with an increased potential for capital appreciation. They tend to have larger allocations of stocks and smaller allocations of bonds and cash reserves.

Aggressive investment strategies are most commonly pursued by young investors who are still of working age. That’s because they typically have longer time horizons, and can ride out periods of market volatility without the need to sell securities or make withdrawals.

But some older investors, including retirees, also pursue aggressive portfolios. Whether this is a wise decision for you depends on a number of factors.

Factors To Consider

Lifestyle and Needs

Our financial and everyday needs tend to change as we grow older. Your retirement investment strategies should be aligned to your individual needs.

Financial Goals

In addition to your current needs, your financial goals for the future should be considered when pursuing an aggressive portfolio in retirement. Do you want to grow your investments to pass onto your children? Are you looking to generate income from your portfolio?

Other Investments and Sources of Income

In most cases, retirees who wish to invest aggressively should allocate just a portion of their total portfolio to this strategy. Your other investments and sources of income are an important consideration when you select more risky investments.

Risk Tolerance

Your personal comfort level when it comes to taking risks is an extremely important factor. Many people find that their risk tolerance goes down as they approach retirement, especially if they anticipate a decrease in their income. Creating a retirement budget can also help determine your risk tolerance.

Retirement Timeline

Your age, health, and retirement plans may also have an impact on the decision to invest aggressively or pursue a more conservative investment strategy.

Pros and Cons of an Aggressive Portfolio in Retirement

Pros:

There’s more potential for growth.
It’s a good option for those with a low cost of living/excess personal savings.
You can take advantage of upswings in the market.
Generally, risk-on assets tend to outpace the rate of inflation over longer periods of time

Cons:

The risk is greater the closer you are to retirement.
A conservative approach has lower volatility and uncertainty
The risk of losing money is much higher in the short-term, so it’s unwise to invest funds you may need to draw on

Tips for Retirement Portfolio Allocation

Assess Your Current Situation

You should always take stock of your current financial situation before you rebalance your portfolio. Take a careful look at your income and expenses, your savings, and your current investments. Then, think about how your needs or goals have changed or may change going forward. This will help ensure you make informed decisions as you create your retirement investment strategy.

Protect Yourself Against Risk with Savings

An emergency fund is an essential component of a sound financial plan at any age and stage of life. But it’s especially important in retirement, when many people experience significant changes in their income and lifestyle needs. Having adequate savings can help offset the risk of a more aggressive portfolio in retirement.

Try to save at least one year of income and two or three years of living expenses to ensure you can withstand a financial emergency.

Diversify Your Portfolio

While many people think they need to sell stocks and buy bonds as they approach retirement, maintaining some exposure to the stock market means you still benefit from the upside of economic growth. It can also help protect you against the risk of outliving your retirement savings.

But it’s generally a good idea to only allocate a portion of your portfolio to stocks in your retirement years. Consider balancing these more aggressive investments with bonds, dividend-paying value stocks, and other income-focused investments.

Plan to Shift Your Strategy Over Time

Rebalancing your portfolio doesn’t have to be a major shift that takes place all at once. Our needs, goals, and preferences change over time, and our investment strategies should accommodate these changes. Continue to reevaluate your portfolio over time so that it’s always working for you, and don’t be afraid to make changes when you need to.

Work With a CERTIFIED FINANCIAL PLANNER™ Professional

If you’re feeling stressed, confused, or unsure where to start when it comes to financial planning in retirement, you’re not alone. Regardless of economic background, money is a leading cause of stress for many Americans. Working with CERTIFIED FINANCIAL PLANNER™ professionals like those at Chatterton & Associates can help you improve your investment strategies and strive for a financially stable retirement.

Pursue Your Investment Goals With Chatterton & Associates

If you’re currently retired or approaching this exciting stage of life, you’re probably thinking about how to ensure your financial security. Your investment strategy will depend on several different factors including your personal needs, goals, and risk tolerance.

A CERTIFIED FINANCIAL PLANNER ™ professional can help you analyze your current investment portfolio and offer valuable insights into how you can adjust your strategy to adapt to your changing needs during retirement.

At Chatterton & Associates, we can provide you with comprehensive retirement planning services to help you reach your financial goals and achieve a less stressful retirement.

Sincerely,

Chatterton & Associates