Retirement Planning

How to Fund Retirement by Diversifying Your Portfolio

Adam Sigel

April 10, 2019

While it may sound like a stuffy financial term, diversification simply means not investing everything you have in one area.

Unfortunately, the typical retirement-age couple does not have a diverse portfolio. Most have too much of their money in equities, like their homes. Since markets can become volatile at any time, you need to diversify your portfolio now to safeguard—and grow—your retirement savings.

When to Diversify

You’ve probably heard the phrase “don’t put all your eggs in one basket” many times in your life. That applies to investing. You want not only a mix of assets but a mix of asset classes: individual stocks, mutual funds, bonds, real estate.

You’ll want to vary assets and classes based on where you are in your retirement journey. For example, as Investopedia notes, if you’re closer to retirement, you don’t want to risk a downturn in the stock market just before you’re set to cash out.

When to Reconsider Diversifying

If you’re more than 30 years from retirement, you can afford to invest all your savings into stocks. You have more time to take—and recover from—risks.

You may also want to reconsider diversifying if you’re investing a relatively small amount of money. The Motley Fool warns that with commission costs and other fees, you’re better off buying one or two stocks to begin and then adding more as you have more capital.

How to Diversify by Decade

Whether you’re in your 40s, 50s, or retired, your age is going to dictate your retirement strategy. But one thing remains the same: You’re never retired from retirement planning.

Diversification in Your 40s

In their 20s and 30s, some people believe they can avoid getting serious about retirement. No matter where you stand in that argument, if you’re in your 40s, you need to get serious. Life events (like sending the kids to college!) may require the majority of your paycheck, but putting off investing will only make it harder later.

Forbes suggests a tax-deferred account: “Money directed into a 401(k) or traditional IRA goes in before the IRS takes a cut and lowers your annual taxable income on a dollar-for-dollar basis. If you’re eligible to max out both your workplace retirement account and an IRA, you’ll shield $23,500 from income taxes this year.”

Diversification in Your 50s

In your 40s, you may be getting up to speed or making up for the lost investment time in your 20s and 30s, but your 50s are the time to hit diversification hard. According to NerdWallet, that means a mix of large-, small-, and mid-sized companies; established and emerging markets; and real estate.

Diversify in Retirement

The good news: Americans are living longer than ever before. The bad news: You need to rethink traditional retirement advice. Financial planners say the percentage of your portfolio to keep in stocks is now equal to 110 or 120 minus your age (versus the previous accounting of 100 minus your age). CNN Money offers a handy tool that calculates where you should allocate your assets to reach your goals.

No matter if your retirement is fast approaching or years away, you need a financial plan for your post-work life. Diversifying your financial portfolio is a smart way to achieve your retirement financial goals throughout every stage of your savings process.

Adam Sigel

is the

Head of Product

at Hometap.