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Protecting Your Retirement Funds in These Volatile Economic Times

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Retirement planning

I was reading an article on Yahoo the other day called The Biggest Victim of the Debt Ceiling Deal: Your Retirement.  The article talked about how, because of the government fiasco going on right now, and the volatility not just here, but around the world caused by our debt issues, that the stock market is on continually shaky ground.  A looming or actual crash or collapse of the dollar has the potential to leave millions of people nearing retirement with a fraction of what they’ve currently saved to cover expenses in their golden years.

The dangers cited in the article are real and valid, and continued bantering and indecision on the part of Congress does indeed have the potential to impact our retirement accounts for the worse.  Although a crash or dollar collapse might not be as impactful for the 25-year-old with retirement savings, it could indeed destroy the 60-year-old’s chances for a comfortable life after retirement.

So what can we do to protect our retirement funds and other investment accounts from the games the government so easily plays with the U.S. economy?  Here are some thoughts:

1.  Diversify

Not just within the stock market, but outside of it as well.  Consider putting some of your funds into commercial or residential real estate.  Or educate yourself in investing in other markets, such as Forex, timber or precious metals.   The point is to not have all of your cash sitting in stocks or bonds, no matter how diverse the fund is.  Consider other investment options as well, assuming they fit with your risk tolerance and level of knowledge on said investment product.

2. Move When Necessary

If you’re close to retirement, as in less than five years, now might be the time to switch to a product that, although it doesn’t earn as much, assures that you won’t lose any of your fund’s principal balance.  IRAs and certain annuities come to mind.  Those within close range of retirement shouldn’t be looking as much for growth as they should for protection, in my humble opinion.

3.  Seek Wise Counsel for Your Retirement Investing

Unfortunately, not every investment “expert” knows what they’re talking about.  A relative of mine, a mere two years away from retirement, had some supposed “professional” working to convince her to put her smallish retirement account in a super-high risk fund because “she needed to work on growing that money.” She didn’t listen, and with the volatility of the stock market at that time it was a good thing: she got laid off a short time later and wouldn’t have been able to make it had she lost any of that money.

Research thoroughly, and interview extensively, getting references for any investment professional you are considering trusting with your nest egg.  They can say they’re an “expert” all day long, but the proof is in the satisfaction of their current and former customers.  Also, check with financially secure and wise friends, asking who they use and if they’re happy with the monetary results they’ve been getting and the service as well. You also want to make sure and find out how they’re compensated as you do not want to be opening yourself up to an advisor who is going to push you into products that are simply meant to make them money and not you.

4.  Understand the Investment Products you’re Choosing

It’s important, before agreeing to sign on the dotted line, that you understand not only the risks of the investment you’re choosing, but what the legalities are for distribution as well.  We had a family member recently who had signed up years ago for an annuity, putting most all of their egg in this particular basket.  They came to find out last spring that the withdrawal rules of this particular product weren’t at all what they need, and now they’re stuck with an investment that doesn’t serve the purpose they need it to at this time.  Before you agree to put your money in any product, make sure you read and understand the fine print. (Editor’s note – I can’t stress Laurie’s point enough of understanding what you’re investing in. It’s incredibly vital to understand what you’re putting your money in so you can better understand the risk you’re opening yourself up to.)

Even in these volatile times, you can protect your retirement funds and keep them cozy, warm and growing while you finish out your working years and head for that life you’ve always dreamed of.   It just takes a little creativity and research.

 

What are your tips for protecting retirement funds in a volatile economy?

 

Photo courtesy of: Tax Credits

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Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.

22 Comments

  • Diversifying within and outside of the stock market is excellent advice. We’re working on the “outside” part right now – I really want to buy some real estate to turn into a rental property. We’re still a few years out from making that a reality, but we’re determined to get there!

  • Since we’re fairly young, we’re not too worried about the ups and downs of the markets. We’re diversified and saving monthly and that’s all we focus on at this point.

  • Matt Becker says:

    Strong points Laurie. I wouldn’t give much different advice for investing in a volatile market because your strategy should have more to do with your overall goals and timeline than on what’s currently happening. If you’re nearing retirement, you absolutely need money in more conservative investments like bonds or even cash, unless you have far more money than you’ll ever need. The flip side of my article up right now is that the returns in the last few years before and first few years during retirement are hugely important, and the biggest risk to running out of money is getting bad returns in those years. As you say, protection is much more valuable than growth at that point, though a balance is really best.

  • I’m a big believer in #1, Diversify, especially into opportunities over which you have some control like a small business, rental property, or education/training (to grow your income). I’m not comfortable putting my retirement security wholly in someone else’s hands.

  • Romona (@monasez) says:

    I would like to diversify my retirement investments but I just don’t want things to get too complicated.

  • Lorillia | Your Money Mentor says:

    As a former financial advisor, I am a big advocate of having a diversified portfolio along with making sure your retirement portfolio is based on your own risk tolerance. Not what a licensed professional says a person’s risk should be.

  • My main problem is currency exposure. If a currency devaluates quite a bit, I do try to buy cheap and keep it for later. I don’t always get it right but it helps not being so exposed to volatility

  • I would like to diversify out of stocks and bonds, but I haven’t really invested enough time in learning about real estate nor do I think I have the upfront capital for it.

  • krantcents says:

    For me, my asset allocation is set up to shield me from market volatility. I do not own bonds or any other fixed income investments, but selected sectors that are more stable than others. This is not a choice for everyone, however it does help to limit market volatility.

  • I would be very wary of diversifying into foreign currency exchange, timber, and precious metals. These can be very volatile and people often lose money in them. I would be looking more for things like sable value funds within 401(k)s, as well as purchasing the maximum amount of i-bonds allowed. I-bonds, which are savings bonds, will always keep up with inflation. Stable value funds are wrapped in insurance bought by the 401(k). From investopedia, “In times of economic recession, stable value funds can prove to be a most valuable investment to have. While many other investments’ returns are much lower in hard times, stable value funds remain just that, stable. The owner of the investment will continue to receive the agreed upon interest rate as well as the full principal regardless of the state of the economy.” These are the sorts of things that people close to retirement should be looking to invest in.

  • Martin says:

    I think it over simplified and those tips cannot be taken without knowing objectives of the person who is investing. All that depends on ones strategy and approach he/she wants to take. For example, if an investor is just at the beginning and can invest $5000 dollar lump sum with $200 monthly addition then diversification is not achievable and such an investor has to take the risk of being under-diversified. It is actually not a bad thing anyway although many advisers and so called experts will tell you otherwise.
    I myself want to get to higher diversification, but I am fine with only a few stocks anyway as they are a lot better to manage than managing 100 stocks. If you stay with blue chips you don’t need more than 10 – 20 of stock in your portfolio.

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