Should You Primarily Use Stocks and Bonds for Retirement?
Investment accounts that deal in stocks and reliable sovereign bonds are some of the more well-known and trusted forms of investment for retirement. However, they are not the only ones.
You can also deal in physical assets, such as real estate and precious metals. Are these better than stocks and bonds? Or do the tried and true still win out?
Let’s take a look.
Well known for their varying risk-reward ratios, depending on the company, stocks are a mainstay of retirement investing.
They have the possibility of rising throughout your lifetime and selling for a good price, and they pay a dividend. You can pick and choose from various businesses, depending on your interests, available funds, and willingness to risk money on riskier ventures.
However, they can fail during economic downturns and take a while to recover, though that’s true of any fluctuating investment that’s tied to the economy.
For most people, keeping track of stocks, trying to pick a good one, or paying for a service that handles it for them can be frustrating and overwhelming. You may feel anxiety over when is the right time to buy or sell. A few cents’ difference can make or break any profit margin when you deal with stocks in high volume.
Depending on where the money goes, a bond can be a safe investment. For example, sovereign bonds (money you loan to the government) cannot be defaulted on, but bonds to private businesses can default.
If it all goes well, you collect on both yearly interest and the full amount, which is returned at the agreed-upon time. If you fear default or want to cash-in early on a few bonds, you can always sell them to another investor.
However, the biggest downside of bonds is the possibility of default. While it can be compensated with a greater interest rate, not many people with limited savings feel comfortable gambling that kind of money.
If you have enough money to place into real estate, you can earn profits while also holding onto the property’s equity, similar to a bond. Depending on how the market fluctuates, you can earn back more on your investment when you decide to sell, or make more on rent if the market demand is high.
Whether or not you rent out the location, you’ll have to perform maintenance, pay taxes on it, and purchase insurance. Some places have also instituted taxes on properties that are not being lived in, whether it’s by the owner or a renter. Real estate can be risky, as the 2008 financial crisis has shown us.
Precious metals are known as a safe investment during times of economic downturn. After all, the value of precious metals (especially gold) typically doesn’t fluctuate greatly. If you fear an economic recession or simply want to hedge your bets, investing in gold can help assuage that fear.
Gold isn’t an abstract thing you can buy online and expect someone to manage for you like an investment account. You’ll need a safe place to keep it, whether it’s a physical safe at home, a unit at the bank, or buried somewhere secret on your property.
All forms of investment have their pros and cons, and it mainly depends on the funds available to you and your willingness to risk them. Stocks allow for a varying degree of risk and reward, which makes them such a popular form of investment. For most people, stocks and bonds are more than enough when investing in retirement.