While there are many financial choices in life, such as whether or not to get a college education, buy property, or have kids, at some point, everyone has to retire. It is essential to prepare for your retirement by making the right investments and including a margin of safety in your plans to provide guaranteed support.
A well-rounded investment plan has three main elements - core investment, non-core investment, and the margin of safety. While the core and non-core assets are included to generate income and growth, a portfolio's margin of safety should aim towards preserving the value of any capital. This will provide a safety net in case your other investments fail.
The assets in the margin of safety should have three specific characteristics:
- It is vital that they don't lose their market value.
- The assets in your margin of safety have little or no market volatility.
- The principal invested in these assets and the income from them should be guaranteed.
Taking these factors into consideration, it would be wise to disregard assets such as bonds and gold, which have been used traditionally, as both of these assets can devalue, causing a potential loss of money.
The recommended portion of your portfolio dedicated to the margin of safety depends on your age, your risk tolerance, and your financial circumstances, rather than on the market. This ensures that, regardless of what happens with the market, you should have enough income in retirement.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.