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CNNMoney fields a question from a reader who’s scared that her money will run out before she does:
Question: I recently had to take early retirement at age 57 because of back problems. I’m now looking for a safe place to invest my retirement money where I’ll have no risk losing it. Any suggestions? — Donald H., Morris, Alabama
Yes, I have a suggestion: don’t post your questions to a financial ‘expert’ who still works for a living!
If you do, you’ll get answers like:
Answer: If the threat of losing principal were the only financial risk you had to protect yourself against in retirement, then finding a safe haven for your money would be pretty simple. You could plow your entire nest egg into Treasury bills or spread it among FDIC-insured savings accounts and CDs (taking care to stay within the FDIC coverage limits).
But while doing this would insure that you would never lose a cent of your money, it would also insure that your retirement stash earned a pretty measly return.
Good, so far … so, no cash. Got it!
What should she do instead (?):
If you want to have a decent shot at your retirement savings lasting as long as you do, you also want to invest in a way that has at least some potential for long-term growth.
[Keep some in cash and the] rest of your savings you want to keep in a diversified portfolio of stock and bond funds. Again, there’s no single correct mix. Typically, though, someone just entering retirement might have 50% or so of his or her portfolio in stocks and the rest in bonds.
Question: If you are aiming to retire, why do you want long-term growth?!
Answer: Because, you expect to lose some significant proportion of your capital to:
– Spending too much,
– Market downturns.
In other words, the expert recommends to invest in a ‘wiggly line’ investment, hoping that the upswings outweigh all the downswings + spending after inflation is taken into account.
How well has that been working out for the past, oh, 20 years?
So, can you think of an investment that tends to grow with inflation, and provides income that also tends to grow with inflation?
Well those treasury-protected bonds certainly have principal that keeps up with inflation, but the returns are so low that income will become a real problem.
But, what about real-estate?
It’s where ‘the rich’ have kept the bulk of their retirement savings since time immemorial … I wonder why? 😉