4 Types Of Diversification Your Retirement Portfolio Needs

Is your retirement portfolio diversified? Diversification is an important part of retirement financial planning from the earliest stages of saving all the way through the point of withdrawing. But achieving diversity in your portfolio can be much more complex than simply knowing it's important. What specific types of diversification should you strive for in your investments? Here are a few of the most important.

1. Diversity of Taxes

Most retirement savers use tax-advantaged accounts that allow them to deduct their contributions from current taxable income. However, this leaves the taxes to be due when funds are withdrawn in retirement. Overreliance on this tax strategy could result in a big tax bill later. Consider accounts with other tax effects, including Roth IRAs and taxable investments, for diversification.

2. Diversity of Risk

Risk is the possibility of losing money on an investment. Young retirement savers are usually encouraged to take on more risk in order to get larger returns. But older savers often need to reduce their risk. However, holding too many risky investments or taking on too little risk puts your returns in jeopardy. Instead, you need a targeted plan to mitigate risk while encouraging growth. 

3. Diversity of Assets

Holding only one asset means you put all your risks in one place. A smart strategy for retirement planners is to diversify the types of assets in which they invest. This could simply include a mix of stocks and bonds or different types of companies. But it may also include alternative investments like real estate or a private business stake. Each asset performs differently, so they can help create more even returns no matter how one asset is doing. 

4. Diversity of Timing

Every investment has its own cycle. Stocks tend to go up during good economic times, for instance, while bonds are more valuable during hard economic times. Real estate has different ebbs and flows. The antique market fluctuates based on trends. And even investment accounts like CDs have cycles of earnings and deadlines. Varying the timing of cycles within your investments helps provide steady returns now and stable income later. 

Want to know more about diversification within your retirement savings plan? Start by meeting with a financial planner, like Compass Financial Group, today. They will work with you to identify your needs and goals, then help you find the best diversity strategies to achieve them. Make an appointment to learn more.