Is It Wise To Include Stocks In Your Retirement Portfolio?

How do you expect your stocks to help you when you are about to attain retirement age? And what percentage of stocks should be included in your investment portfolio when you are about to retire? The conventional method is that you subtract your age from 100. The result that is obtained indicates the percentage of stocks you should include in your investment or your retirement portfolio.

In majority of the cases it has been observed that consumers usually prefer to invest in bonds and cash as compared to stocks. This is because returns you get from stocks are not certain and stocks are regarded as volatile. So, if you are planning to make a short term investment, stocks may not be the right investment vehicle for you. As such there are many retirees that don’t prefer to invest in stocks.

However, things have changed and the way investors have started thinking has also changed.

Factors that might affect your investment in stocks

There are many factors that affect your stocks differently. These factors are as follows –

• Inflation

Inflation will greatly affect returns from your fixed investment like CDs, bonds etc if inflation sets in. Inflation is an enemy of bonds. Inflation causes the value of new bonds to rise since interest rates rise too but the value of the older bonds subsides. So, you get higher returns from new bonds and your older bonds become useless.

• Escalating costs

If you are investing in bonds and there is inflation, your older bonds will not give higher returns and the returns will not be enough that can compensate for the rising costs. However, stocks have always helped in hedging against inflation. Companies offering stocks can increase the price of stocks so that it can compensate for inflation.

Although stocks are considered volatile but if you have an experienced stock broker to assist you, the returns you get from the stock market can be high. It is best to have a mix of cash, bonds and stocks in your retirement portfolio so that you also have enough backup doesn’t make you cash strapped if you face an unforeseen event in near future. You also need to buy the right kind of stocks and in this regard a stock broker can be of immense help.