Retirement savers are often told they’ll see a greater return in their retirement assets if they invest it – and that may be true – but it’s important to prioritize some cash in a retirement plan as well.
Retirement Tip of the Week: For those close to retirement, consider keeping a portion of your retirement plan in cash – whether that be in the portfolio itself, or in a separate account.
Bank and money market accounts do not generate the same type of returns as investments, though right now with volatility some investors may beg to differ. Investing in equities is an important factor in the puzzle for retirement income, as stocks and equity funds can create a larger return over time, but there are instances – like right now – when retirees could really use easily accessible cash.
Have a question about your own retirement concerns? Check out MarketWatch’s column “Help Me Retire”
As the saying goes, “cash is king.” That’s not always true when it comes to preparing for retirement, but having cash on hand does allow retirees the opportunity to avoid tapping into their portfolio during market volatility. Retirement savers may be stressed to see their balances dropping week after week as major indices and sectors across the board suffer from the current volatility.
Taking money out of an investment portfolio when it’s on the decline can provoke the “sequence of returns risk,” which is when investors might suffer from lower possible returns over time because they tapped into their investments during a downturn. People who have to take from their retirement portfolios should do so conservatively, but if they can avoid it altogether, they’re giving their investments time to rebound when volatility subsides. Cash helps with that.
Also see: My wife and I will have $250,000 in a retirement emergency fund – what’s the best way to store that cash?
Cash can also be built into an investment portfolio, which is a strategy…