How to build and manage your retirement portfolio

A well-devised portfolio is essential for attaining sufficient income to fund your retirement. Many people might feel intimidated about the notion of building one for themselves, but it doesn’t have to be frightening. Setting up the foundation for success takes just a little know-how and research. With that in mind, follow these broad steps to build a strong retirement portfolio and manage it for optimal outcomes.

Determine your financial goals

To get where you’re going, you need to know what the destination is. Your financial goals represent the destination on the roadmap of your journey from here to retirement. Determining your goals requires figuring out what you want to do with your money in retirement, how long you have to prepare, and how long you think you’ll have to use your retirement money. From there, you can move backward to identify what you need to do to reach those goals.

It also involves weighing your risk tolerance against your risk adversity. How willing are you to endure the volatility of an investment in exchange for potentially great rewards? Greater risk tolerance generally correlates with a speedier time frame in which to reach your goals. Risk adversity correlates with the opposite. Once you’ve worked out these details, you can figure out which financial vehicles will best work with your plan.

Should you need help figuring out the answers to tough questions concerning your longevity or retirement capability, take advantage of free online resources for retirement planning to get primed and ready.

Open retirement accounts

A retirement account is a tax-advantaged savings vehicle that allows you to grow your money in a steady, relatively secure way. There are many types of retirement accounts, but probably the best known of them are workplace retirement accounts and individual retirement accounts (IRAs). Both types work in roughly the same way. You choose a number of investment options and fund your account, and the account grows based on how well the investments perform. The primary differences between them are:

• IRAs typically aren’t employer-sponsored, whereas workplace retirement accounts are.
• Each has a different contribution limit. In 2024, it’s $23,000 per year for a workplace retirement account and $7,000 per year for an IRA.¹

Though both of these types of accounts are subsets of a larger category, they too represent a world of different options, each with a different set of stipulations and benefits. Make sure to familiarize yourself with all of the feasible options so that you can make an informed choice.

Diversify

You’ll need other assets, aside from a retirement account, to add to your portfolio. As you’re choosing your assets, focus on diversification. Diversification is a strategy that entails mixing up your portfolio with a wide variety of assets and asset types. Ideally, you want to achieve a mix that spans the gamut from liquid to illiquid. So, aside from stable resources like cash and precious metals, you might add vehicles like real estate, stocks, bonds and insurance products.

The philosophy behind diversification is that your stable assets can make up for potential losses incurred by your volatile assets. For example, if the stock market performs poorly or the housing market dips, the gains from your more stable assets can help to balance out the losses.

Choose the right assets

The assets you choose, as well as the proportions of each asset type in your portfolio, should reflect your financial goals. Say that you have just 10 years before your intended retirement date. In that case, you may want to increase the proportion of higher-risk and higher-reward vehicles, such as stocks, to ensure you reach your minimum wealth threshold in time. Of course, with that approach, you expose more to losses.

Say that you have a legitimate concern about running out of money in retirement. You may want to set up a safety net that guarantees you receive income.* Fixed annuities would do just that. They are retirement vehicles, sold by insurance companies, that offer a set rate of return. You fund the annuity with a lump sum or series of contributions, the insurance company invests the money to grow the account tax-deferred, and you can choose to convert the account to regular payments in retirement.

Adjust

As retirement draws closer, you may find your needs gradually changing. Your portfolio should change accordingly. At least once a year, review your financial goals, your portfolio, and how well the latter serves the former. If you find areas in need of adjustment — a shift in portfolio mix, a different stock, a new fixed annuity — make those adjustments. This sort of proactive approach helps to ensure that your actions align with your needs and your objectives.

If you want to fine-tune your retirement portfolio, speaking with a financial professional is the best tactic. Ask about strategies you can use to achieve the appropriate diversification mix and maximize your returns.

This article was written by Editorial Team from Under 30 CEO and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

1. "401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000." IRS, November 1, 2023.

* Guarantees are based on the claims paying ability of the issuing insurance company.