You’ve heard the old adage, “don’t put all of your eggs in one basket.” This saying is applicable to many parts of our daily lives, however, it should be turned into a retirement planning mantra, especially for individuals who have placed all of their hard-earned retirement savings into a corporate-sponsored retirement account, such as a 401(k), a 403(b), or TSP account.
This is especially true as we navigate through volatile securities markets and high inflation. If you have either maxed out your annual 401(k) contributions and/or you are looking to add more diversification to your retirement savings strategy, this article will outline some investment diversification strategies that you can rely on.
Key Points of this Article:
Each year the IRS determines how much individuals can contribute to their 401(k) accounts or other qualified retirement accounts, such as IRAs or Roth IRAs. The limit in 2022 is $20,500 with the caveat that individuals over the age of 50 can contribute an additional $6500, which is considered a “catch-up” contribution.
If you are not 100% comfortable with your investment knowledge/skills, one sure-fire way to ensure you are properly invested in your 401(k) plan is to have a financial planner or financial advisor review your current holdings in your plan.
We highly recommend that you have a good understanding of the different investment options that reside within your 401(k). This is increasingly important given the volatility of the markets in recent times. If you are not allocated properly, you run the risk of experiencing a significant decline in your account’s balance if you are highly exposed in one particular asset class or investment.
If you don’t have a financial planner or advisor yet, you can hire one on an hourly basis to assist in reviewing your current 401(k) investments to get a better sense of the types of funds that are available for you to use as well as review your current allocations. From there, the financial planner may ask you specific questions like when you plan on retiring, your tolerance for risk, etc. This will give them a better sense of not only your current situation but also how your account is allocated to help you achieve your financial goals.
This type of meeting could be worth its weight in gold to you, especially given today’s market volatility.
If you have additional funds outside of your monthly contributions to your 401(k) that you want to invest in, there are several options available.
If you’re not happy with the investment choices in your 401(k) or if you’ve maxed out your 401(k) contributions for the year, consider opening a Roth IRA.
What makes a Roth IRA different from a 401(k):
HSA accounts can be another good source for retirement saving assets because they too are tax-advantaged. If you have a high deductible health plan, you may want to consider an HSP account.
HSA benefits include:
If you have a growing family of your own or are grandparents who would like to help your grandkids with their future, a 529 account is a terrific tax-advantaged savings account.
529 plans include these features:
Real estate can be a great way to diversify your portfolio, especially during volatile market conditions and inflationary periods like we are experiencing today.
There are several ways you can invest in real estate:
When you invest in syndicated or private commercial real estate transactions, you must be an accredited investor, meaning you have to meet certain income and/or net worth requirements.
Most real estate investments are not liquid – in other words, you can’t buy and sell your holding in a day like you can a stock or bond. Most commercial real estate investments have a duration of several years before there is a liquidity event.
Along with many tax benefits, you can also realize passive income when you invest in real estate. This is often attractive for higher net worth individuals so you don’t have to manage the property yourself. You have a team that handles the day-to-day operations of managing and maintaining the property for you.