Principles of Financial Freedom During Retirement: Investing in Stocks
This article is the first in a series of articles detailing what I like to call the Principles of Financial Freedom During Retirement.
Principle #1: Invest in Stocks
A long retirement is a blessing and thanks to medical advances, we are living longer and more actively. But, this also forces us to plan your finances for a long retirement.
In order to do so, we need to focus on two things:
- Consistent Income
- Protection Against Inflation
Bonds are normally the go-to asset class when we want to provide income during our retirement.
Bonds offer an excellent form of diversification. Bonds lower the volatility of the portfolio and provide an income source during retirement.
However, bonds will not protect your portfolio against the long term effects of inflation. Most people focus on the income they receive each year without considering the effects of inflation on their purchasing power.
During retirement, not only should you focus on income, but you should also focus on protecting your purchasing power.
The higher long term average returns on stocks provide a much better hedge against inflation than do bonds.
To protect yourself against inflation during retirement you have to not only earn more than what you are withdrawing as income, but you need to earn more than inflation.
I break this down in the quick video below:
The stock market offers the best hedge against inflation. So, it’s important to incorporate both fixed income securities and equities into your retirement portfolio.
My next free video course will be available soon, it covers how to manage investments during retirement and how to avoid the myths that Wall Street perpetuates. I’ll post an update when it’s ready to go.
As always, if you have any questions feel free to post in the comments section below. If you want to receive updates for the rest of this series right to your inbox, sign up for email updates at the bottom of this post.