5 Best Ways to Maximize Your Retirement Investments
NEW YORK ( TheStreet) -- BlackRock, the largest U.S. asset-management firm, says Americans need to consider different ways to ensure they have enough money in retirement, including reducing cash holdings and using exchange traded funds.
The stock market has been volatile, making investors skittish. Yet Treasury yields at 2% are barely keeping up with inflation, and there is a lot of cash on the sidelines earning almost nothing. That has left many investors discouraged.
"Investors are looking for answers in a new world where the returns they once took for granted are constrained by historically low yields, market volatility and shifting investment patterns," BlackRock CEO Laurence D. Fink said. "Wherever I go, the question I hear most often is: 'So what do I do with my money?' "
So as an investor, what should you do? BlackRock suggests making your portfolio more dynamic -- it needs to be flexible enough to adjust to quickly changing market conditions and diverse enough to take advantage of global trends.
In its new multi-media approach, called "Investing for a New World," BlackRock provides these five considerations to ensure you have enough money in retirement.
1. Rethink the Cost of Cash
Holding some cash is prudent, but given inflation rates, cash will lose nearly half of its value over a 20-year retirement. Long-term investors need more robust strategies to preserve the value of savings.
2. Seek Income in Different Places
Consider investing in dividend-paying stocks, which often pay twice as much as Treasuries. Higher yields can also be found in corporate bonds, high-yield bonds, municipal bonds and even emerging market sovereign debt.
3. Open Your Eyes to Alternatives
Alternatives like mutual funds and exchange traded funds that invest in commodities, real estate and energy can achieve above-average returns and reduce risk because they are less likely to move in tandem with stocks and bonds.
4. Be Active About Passive
ETFs do most of the hard work for you by combining a full range of asset classes and global markets, but don't be passive. ETFs trade like stocks so adjust your exposure as needed.
5. Use Your Longevity
Realizing you are going to live longer means you can expand your investment horizon past the day you retire. For example, 50-year-olds should consider a 25-year time horizon, which means they can consider riskier assets like socks, commodities and alternatives. Your longevity will allow you to ride out market cycles.
Fink said in a speech to the Council on Foreign Relations that the financial community, corporations and governments need to unite to help make sure people are educated about investing for their long-term needs. As the 60% stocks, 40% bonds allocation is no longer relevant, "companies have a moral responsibility to educate their employees. Shifting from a defined benefit to a defined contribution plan doesn't absolve them of that responsibility."