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Monday, January 31, 2011

Better Income Planning For Retirement Via A Diversified Portfolio

For a more fortified nest egg that will last you throughout retirement, you will find that a well-diversified portfolio will serve your retirement income planning efforts well. Much like the old eggs in a basket metaphor, you would not want to put all your money in one investment or one savings venue; market conditions, inflation rates, and other factors that could degrade you funds will not be forgiving. In a nutshell, putting your money in different savings accounts will allow you flexibility via various tax benefits, for example, while buying into various investment options will help offset any losses if your stocks or bonds undergo significant devaluation.

Financially speaking, it makes sense to put your eggs into different baskets (with different numbers of eggs in baskets of various sizes, depending on the physical and structural integrity of said container).

However, it is not as simple as randomly picking investments to buy into and sell off where the degree of investment diversification your portfolio has depends on your own personal and financial status, as well as your tolerance to risk (possibly influenced by how far or how close you are to actual retirement). There are also different variations and interpretations on the meaning of true portfolio diversification.

Basic Investment Diversification

Many experts and experienced investors believe that better income planning for retirement can be achieved by optimizing and lowering the overall risk of the stocks in your portfolio. For example, purchasing stocks from various industries and sectors is a sensible plan of action, as buying stocks wholly from one portion of the market could cause you to lose a substantial part of your money if that market were to go bust.

In this case, some may argue that an upshot in stock value could net you huge profits, but the risk may be too much even if the gains are taken into account. Despite certain regulations and safeguards implemented some years ago to diminish the chances of, The Crash ever occurring, having much money in one specific stock that devalues less than two digits could cause you to downsize your retirement lifestyle and not have enough to live on in your golden years.

However capable you think you are of taking solid investment hits, a diversified portfolio will always be welcome. Aside from helping protect your wealth by buffering against investment loss, having money in various investments could also mean bigger potential earnings; one of the main goals of proper income planning for retirement.

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