The perfect retirement portfolio is the dream of everyone approaching retirement. The ability to stop working yet have a handsome income to indulge in lifelong aspirations is a noble goal.
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As unfortunate as it is, many retirees never reach this objective. While they may have done everything by the book during their working years, a non-truly diversified portfolio prevents the aim from being actualized.
Retirement Is Often A Game Of Defense
True diversification is the primary key for a successful retirement. Diversification prevents a single investment or asset class from sinking the ship due to a black swan or long-term bear market. Approaching your retirement portfolio from the defense angle is critical. Preventing a portfolio disaster will allow market forces to work their magic. Even if an entire asset class plunges, playing defense via true diversification will help protect your portfolio.
What Is True Diversification?
Many investors erroneously believe that having a diversified stock portfolio is all the diversification needed to weather financial market storms. Nothing could be further from the truth. The entire stock market, even international markets, is correlated to some degree. True diversification means being invested across asset classes and global demographics.
I have identified five retirement portfolio musts that will help provide true diversification:
1. The Stock Market
Owning a diversified stock portfolio remains the cornerstone of retirement investments.
Using dividends, buybacks, and appreciation of the stock market should be the prime engine of your retirement portfolio.
Growth, income, and defensive stocks are the core of the perfect retirement.
StreetAuthority has numerous experts and articles that will guide you to the ideal stock market holdings for your long-term retirement.
2. Precious Metal
Precious metals, like gold and silver, are the first thing most investors think of when it comes to diversification outside of the stock market.
Gold has historically been a great hedge against inflation, and its limited supply helps hold its value.
The primary ways to invest in precious metal is by purchasing the physical asset via ETFs, futures, and mining company stocks. A retirement portfolio should hold both physical metal and one or more of the paper proxies.
3. Go Alternative
The democratization of finance has opened up an entire world of alternative investments to everyday investors. You no longer need to have an ultrahigh net worth investor or an institution to profit from the alternative universe.
My favorite way to access alternative investments is via the Yield Street platform. YieldStreet.com enables all accredited investors to diversify via a wide variety of unique, asset-backed investments.
Strategies that were once only available to the most sophisticated investors are now accessible to many retirees as a powerful way to diversify.
Investments like litigation finance, short-term business financing, vessel deconstruction, large dry bulk ship acquisitions, residential renovation financing, law firm funding, short-term receivables and a variety of real estate-based portfolios are available on the platform.
Many of these strategies have very low stock market correlation and target 8-20% returns over a one to three-year time frame. Overall, the platform has an IRR of just under 13% and has experienced zero loss of principal since launch.
Those seeking true diversification should consider alternative investments for their retirement portfolio.
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4. Real Estate
Income-producing real estate can be the bedrock of an adequately diversified retirement portfolio. The great thing about income-producing real estate is that no matter how bad things get in the financial markets, housing is always a necessity. Whether or not the property value goes up or down, paying rent is a priority for most everyone.
A properly structured income-producing real estate portfolio provides the cash and security needed for many retirees.
5. Have Fun
Just because you have retired does not mean that you need to stop having fun in the financial markets. There is nothing wrong with speculating with a small number of your retirement funds.
I would not play with more than 10% of my total retirement capital in the markets. Trying to time the stock market with futures, speculating on direction with binary options on Nadex.com or taking a flyer on a penny stock are all ways to keep your mind sharp and focused on what comes next.
Risks To Consider: Alternative and other investments have a risk. Even income-producing real estate has its risk factors. Always think about the downside before making any investment.
Action To Take: Review your retirement portfolio and ask yourself: is it adequately diversified? If not, take the steps to start diversifying.