If you want to ensure a higher (and safer) rate of return for your retirement portfolio, then it’s important to know what not to invest in after retirement.
One thing we encourage all investors thinking about retirement to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.
We also make recommendations of what to buy and what not to invest in after retirement. Here are five examples of what not to invest in after retirement.
What not to invest in after retirement: Penny stocks
Buying low-quality penny stocks is one of the things that can appear to be successful before it goes badly wrong. Some get hooked on it, since low-quality stocks can be highly profitable over short periods. That’s because they are generally more volatile than high-quality stocks.
All penny stocks rely on luck to become wildly profitable. If you play long enough, the “house odds” eventually triumph over any run of luck. In penny stocks or games of chance, the odds are against you. So, time works against you. The longer or more often you play, the likelier you are to lose.
What not to invest in after retirement: Short-term investments
One thing to consider about short-term investing is the market’s volatility. When volatility is heightened, it makes it harder for in-and-out traders to make money.
There is no denying the immediate appeal of taking a fast profit. However, most successful investors find over long periods that much of their profit comes from a handful of their best investments—stocks that went up much more than they ever expected. If you are too quick to take profits, you’ll wind up selling your best picks when they are just beginning to rise.
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What not to invest in after retirement: Bonds
As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments for their retirement investments instead of holding stocks or ETFs.
Unless you really want to hold them in your portfolio, we don’t recommend bonds or other fixed-income investments as buys. They pay low interest and will drop in value as interest rates rise.
If you choose to use bonds for retirement, assume you will earn the current yield; don’t assume you can make money trading in bonds.
What not to invest in after retirement: Stock options
Stock options are not a smart idea if you’re in retirement. Stock options are expensive to trade. You pay commissions each time you buy or sell stock options. Commissions eat up a large part of any profits you may make with stock options, particularly if you trade in small quantities. What’s more, every trade costs you money in “slippage,” or the difference between the bid and the ask price. With options, this difference is larger than it is with stocks.
Stock options can also be rendered worthless. Unlike common stocks, an option has a limited lifespan. You can hold common stocks indefinitely in the hope that their value will increase. A stock holder can wait out a temporary downturn in the hope of eventually realizing a profit. But every option has an expiration date. If an option is not sold or exercised prior to its expiration date, it expires and is worthless. For this reason, an option is considered a “wasting asset.”
What not to invest in after retirement: Junior mining stocks
A junior mine is typically a mining company with a single, small mining operation. That adds to risk, because it will need to successfully maintain production at high levels—otherwise its single source of cash flow will dry up.
Because of this, junior mining stocks are highly speculative investments, and can easily cost you money. Investing in junior exploration stocks is especially risky because it’s relatively cheap and easy to launch a penny mine company and sell stock to the public. So the junior promotion business attracts more than its share of unscrupulous operators and stock promoters.
The successful investor portfolio diversification approach gives you strong potential for long-term gains and is considered one of the best retirement investment strategies
If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.
As part of their portfolio diversification strategy, most investors should have investments in most, if not all, of the five economic sectors. The proper proportions for you depend on your temperament and circumstances.
Have you bought any of these types of investments during your retirement, and if so, how have they performed for you?
Stock options can be risky at any time, but especially once you’re into retirement. What do you invest in to keep your retirement finances safe?
