Suze Orman is well known for her financial advice on a wide range of topics. One of the issues she's addressed is retirement preparedness.
Since many Americans struggle to save enough for retirement, her tips for investing for your later years could be helpful in ensuring you end up with the money you need. In particular, Orman has three suggestions most people should follow if they hope to amass a nest egg large enough to fund their future.
1. Investing is supposed to be for the long term
Orman strongly recommends taking a long-term perspective when investing for retirement.
This means buying assets you'll be happy to hold for many years and not worrying about short-term losses. This is a sound approach because, as she points out, there are inevitably periods when stocks will lose value temporarily. But the important thing is their long-term track record and the returns they earn over many decades.
When you invest for the long term, you can wait out any market downturns and should hopefully earn a positive ROI over the decades you're saving for retirement. Further, as Orman points out, long-term investors actually benefit from market crashes because these downturns provide buying opportunities.
As Orman explained on her blog,”Every dollar you invest can buy more shares” when stock prices are down. “Over time — and you have decades — owning more shares that rise in value means having more money in retirement.”
2. Pick the right bond funds
Having a diversified mix of assets is advisable when investing for retirement.
For most people, this means having a good portion of their money in stocks but also some of their retirement investment funds in bonds as well. Bonds are debt instruments, and they're supposed to serve as a buffer when stocks are falling.
However, Orman has a warning about near-term problems with bonds resulting from the fact that bond yields are coming up from low starting points. This has resulted in some fund funds temporarily losing value.
Orman advises sticking with bonds despite these possible issues. However, she suggests you should choose your bonds carefully. Her advice is to stick with a core bond fund or invest in shorter-term bonds if you're concerned about increasing interest rates.
And, again, she warns that it's best to take a long-term view and not give up on your bond investment even if you don't get the desired returns in the short term.
3. Rebalance regularly
Finally, Orman advises regularly evaluating the mix of stocks and bonds in your portfolio to ensure you have the right asset allocation. This is important because your risk tolerance changes over time as you get older.
If you have a target date fund, you don't have to worry about this. Your portfolio is rebalanced for you. But if you've selected your own investment mix, you'll want to change the percentage of your portfolio invested in stocks versus bonds as you age and have less time to wait for market recoveries to occur.
Orman's three pieces of advice are important, as you want to make sure you have the right investments and hold onto them for the long term. Doing so is the surest path to the secure retirement you deserve.
The $18,984 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.