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You invest in stocks for growth, but that growth comes at a price: volatility. You can turn to bonds because they’re less volatile, but the price for reduced volatility is the potential for less long-term growth.
When you’re investing your retirement accounts, you have to weigh your need for growth against your ability to withstand volatility, and your needs often change over time.
If you are pre-retirement, you should be primarily focused on accumulating enough money to fund your life after you stop working. Fortunately, you have time on your side and can be more focused on growth. Although your stock portfolio may be more volatile, you have time to recover from losses and the increased return potential of stocks should help you accumulate the amount that you will need in retirement.
As you get closer to retiring, you probably have been making regular contributions to your retirement accounts for years and so you’ve accumulated more money. You should still be putting money aside and you still need growth, but because you’re also closer to the point when you will no longer be earning, you probably value capital preservation almost as much as additional growth.
When you move into retirement, you’ll likely stop putting money into your retirement accounts and begin taking money out to meet expenses. Post-retirement, you’ll have less time to be invested and you’ll be more focused on income and capital preservation than on growth. The less volatile nature of bonds makes them a good fit for current income, and you should still maintain some exposure to stocks for growth and diversification.
Here are some ways that you can use the FundX Upgrader Funds to create a pre- or post-retirement account. For each of these examples, we used the FundX Upgrader Fund (FUNDX) for a diversified growth portfolio and the FundX Flexible Income Fund (INCMX) for the fixed income component. We adjusted the portfolio allocation by adjusting the allocation to these two funds.
Pre-retirement (under 55 years old)
Closer to Retirement (ages 55-70)
In Retirement (over 70 years old)