How to Secure your Retirement Savings with Mutual Funds

How to Secure Your Retirement Savings Through Mutual Funds

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Hey everyone! Andy here! I’ve got a guest post today from Andrew Altman of which focuses heavily on the investing side of building wealth. Today, Andrew is talking Mutual Funds. One of my favorite topics! Here’s Andrew!

Saving for retirement requires a unique mindset and method. “Playing the market” to get rich quick is risky business indeed when you are funding your efforts with retirement monies. But you also can’t minimize all risk and still count on having sufficient savings to fund you during your retirement years.

So what strategy is best?!

Financial experts tend to advise seeking balance between risk and potential reward in building your retirement portfolio. When you pack your portfolio with high risk, low risk and middle risk assets, you can weather some losses in the interests of other gains.

In this post, learn how mutual funds can play an essential role in achieving balance in your retirement portfolio.

High Risk, Low Risk, Middle Risk – When to Do What?

Generally speaking, investment advisors often counsel for higher risk investments early in your career when you still have plenty of time to build your retirement nest egg.

In the middle career years, shifting to a moderately risky investing strategy can protect what your portfolio has already accrued while still giving you some potential to grow your savings.

Near the end of your career, the best strategy is often viewed as one of low risk, with the chief goal to protect what has already been earned and ensure it is there for you in your retirement years.

Examples of High, Middle and Low Risk Investments

In order to build in the appropriate amount of risk for your stage of retirement savings, it can be really helpful to know which types of investments fall into each category.

High Risk

Stocks, commodities futures, initial public offerings (IPOs) and high yield bonds are all considered high risk investments.

Middle Risk

Mutual funds dominate the median risk investment marketplace. This is due to how these funds are structured. Any single fund can include shares from 10 or 100 different companies, some lower risk and some higher risk. All together, the risk averages out to moderate for the investor.

Low Risk

Treasury bonds, which are backed by a federal government guarantee, produce reliable small yields in exchange for low risk of default. Similarly, savings bonds, CDs (certificates of deposit), MMA (money market savings accounts) and annuities are all low risk investment products.

Understanding Mutual Fund Fees

Whether you are building your retirement portfolio primarily through an employer’s retirement benefits offerings or on your own, your ultimate goal should be diversification. This term translates to mean “balanced risk.” At all times, regardless of whether you are just starting your career or nearing its end, your retirement portfolio should include some assets that are higher in risk and some that are lower in risk.

Only by following this strategy can you weather the inevitable losses with compensatory gains.

Since investment funds as a whole tend to be classified in the middle of the road risk category, what you need to watch out for here is the overhead – aka fees.

As Investopedia explains, some funds, especially those managed by a larger team of analysts and those that are “famous” funds, can come with fairly hefty annual fund management fees. These management fees, which can range from 0.5 percent to 2.0 percent, can eat away at your returns year by year.

Ideally, you want to stay close to the low-end of the management fees range and look for funds that are classified as “no load.” This means you don’t have to pay a fee when you buy into or cash out of the fund. If you buy into a load fund, you may pay between 3.0 percent and 8.5 percent for each transaction you make.

The higher the mutual fund’s fees are, the less money you will make and the more profit the fund will have to generate before you see any of it.

Choosing a Fund for your Portfolio

These tips can help you select a fund that will be a worthy addition to your retirement portfolio.

1. Keep Your Eyes Focused on the Long Term

Fund assets are not a good choice for reactive investors. In other words, if you are the hare in the race, you may not do well to pace yourself for the long-term return. But if you are the turtle, a balanced fund is a perfect choice for you.

2. Look for a Seasoned Fund Management Team

You don’t need to pick a fund managed by a financial rockstar (in fact, you will likely bear more expense if you do). Just look for a fund with low management turnover and a steady rate of returns.

3. Make Sure You Can Sleep at Night

If your fund investment choices are keeping you awake at night worrying (such as biotechnology funds tend to do) you may want to consider downgrading your risk.

4. Look for Stability Within the Fund Itself

If the fund has more than 30 percent turnover per year, it may be too unstable to justify the purchase.

5. Remember that Bigger Isn’t Always Better 

The bigger the fund and the weightier the value, the more complex the management responsibilities become. Sometimes a smaller, lighter weight fund is the better way to go.

6. Always Make a Choice for Integrity

There is a case to be made for buying into funds comprised of companies whose products you believe in. The same holds true for those funds management teams. If you are in alignment with their vision and values, you will feel better about your choice of investments.

Even financial experts spend their entire careers studying and learning about investment strategies and methods. You could do the same and still never learn all there is to know about investment practices.

As long as you build a portfolio with balanced risk made up of assets you personally resonate with and believe in, you can make minor adjustments along the way to achieve your investment goals.

Andrew Altman is the editor in chief of a website Via his informative articles, practical advice and reviews, he aspires to help people learn how to manage money more cleverly and achieve the type of wealth they desire.

What does your retirement savings look like?


Author: Andy Hill

Andy Hill, a mid-30’s father of two living in the metro Detroit area, pens the (MKM) blog taking you through the trials and tribulations of being a young parent and husband who is planning for his family’s future and winning with money.

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