The best way to invest your retirement funds depends on your personal financial situation, whether you have a separate pension and what kinds of fixed expenses you have. Apart from such factors, you want to identify safe investments that generate reasonable income and protect you against inflation. The best way to accomplish these goals is to use a combination of the five top investments in a way that meets your personal financial goals.
Annuities are an attractive investment in retirement because they generate income for as long as you live. Investing part of your retirement money in annuities gives you a base from which to build a diversified portfolio with investments that are more risky but yield a higher rate of return. You have to choose between fixed annuities that pay a specific income and inflation-adjusted annuities for which the payout is adjusted according to the rate of inflation.
The safest investments you can make are U.S. Treasuries. You can invest in them if you want to have absolute security for part of your investment portfolio. The interest paid is low, but you can select Treasury Inflation Protected Securities (TIPS), which are indexed to inflation to help insulate you from losses due to rising inflation in the future. If you're looking for a safe investment, Treasuries are a top choice.
Bonds are a staple of retirement investing because they can be safer than the stock market. They are a good investment for adding a reliable income component to that generated by Treasuries and annuities. Municipal bonds are tax-free at the federal level and offer a reasonable interest rate for a low-risk investment. Some corporate bonds also offer attractive rates at a slightly higher risk. The percentage of your investment portfolio in bonds has to reflect how much security you need in your investments and how much of your investment you want to assign to generate a low but safe income.
Large Cap Stocks
In addition to secure investment portfolio components, you want to include investments that give you a higher rate of return. Large cap stocks are a top choice for retirement investing because they are less volatile than the stocks of smaller companies. Many also pay dividends, which lets you draw income while waiting for the stocks to appreciate in value. The percentage of your portfolio you place in stocks depends on your tolerance for risk.
ETFs have low management costs and reflect the performance of the stock market indices they are based on. As a result, they are as safe as the stock market as a whole, and have a place in a retirement investment portfolio as a higher risk, higher return component. Over the long term, you can expect this part of your investment portfolio to generate the highest returns, but it will also be the most volatile.
Bert Markgraf is a freelance writer with a strong science and engineering background. He started writing technical papers while working as an engineer in the 1980s. More recently, after starting his own business in IT, he helped organize an online community for which he wrote and edited articles as managing editor, business and economics. He holds a Bachelor of Science degree from McGill University.