Money Management

You don’t want to go too heavy on stocks as a retiree. But read on to see why going to the opposite extreme isn’t a great idea, either. 

Workers are often encouraged to invest heavily in stocks when retirement is many years away. Even though stocks can be volatile, they tend to generate pretty strong returns. (The S&P 500 has averaged 10% returns annually over the past 50 years, which is pretty impressive.) So it’s worth taking on that risk at a time when retirement is far off to enjoy that growth in your portfolio while you can.

You’ll often hear that it’s a good idea to move away from stocks as retirement nears and shift to safer investments, like bonds. And that’s good advice.

Let’s say you were to keep 100% of your IRA in stocks as a retiree. What if the stock market were to crash, driving the value of your portfolio down by 20%? If, at that point, you needed to take withdrawals to cover your living expenses, you’d automatically lock in a 20% loss every time you cashed out an investment. That wouldn’t be good.

On the other hand, you don’t want to go to the extreme of not having any stocks in your portfolio as a retiree. If you dump your stocks completely, you might stunt your savings’ growth during your senior years. And that might mean having to limit your withdrawals to avoid running out of money.

You need some stocks during retirement

It’s important to withdraw from your retirement savings strategically so that money lasts throughout your senior years. And for a long time, financial experts felt that withdrawing from savings at a rate of 4% a year was reasonable.

Now at this point, that 4% rate is a bit questionable due to changes in market conditions (namely, bonds aren’t paying as generously as they did when this guidance was established, so that’s a reason to go with a more conservative withdrawal rate than 4%). But even so, it hinges on having a portfolio that consists of 60% stocks and 40% bonds. If you have none of your assets in stocks during retirement, you’ll have to stick to a much lower withdrawal rate, thereby limiting your income.

So, let’s say you manage to retire with a $1 million nest egg that’s 60% stocks and 40% bonds. If you opt for a 4% withdrawal rate, you’ll get $40,000 of annual income out of your savings.

But if you have no stocks in your portfolio, it means your money won’t grow as much in retirement. And as such, you may have to limit yourself to a 1% or 2% withdrawal rate, leaving you with just $10,000 to $20,000 of annual income. That’s less ideal than $40,000.

It’s all about striking a balance

You don’t want to keep too large a percentage of your portfolio in stocks as a retiree, as doing so means taking on a lot of risk. Rather, it’s good to strike a balance between stocks and bonds.

You could go with the 60%-40% split the 4% rule assumes. Or, you could use the rule of 110, which has you subtracting your age from 110 to see what percentage of your portfolio should sit in stocks. If you’re 65, you’d have 45% of your assets in stocks and the rest in bonds.

Of course, there are other allocations you can play around with, too. The point, however, is to not go to the extreme of getting rid of stocks when retirement rolls around. You need those stocks to continue generating growth so you have access to a robust income stream that helps you cover your expenses without worry.

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Want help managing your money? Read on for qualities you definitely don’t want in a financial advisor. 

People who end up wealthy don’t always get there on their own. Often, they seek help in the form of a financial advisor.

Recent data from Northwestern Mutual finds that 70% of wealthy Americans have a financial advisor, which is roughly twice as many as the general population. And while you might think you don’t have enough money or assets to warrant the help of an advisor, you’d be wrong.

Financial advisors will commonly work with clients regardless of their income, savings, or age. Rather, a good advisor is someone who will help you make the best of your financial situation — whatever it happens to be — and assist you in meeting your financial goals.

But if you’re going to work with a financial advisor, it’s important to find the right person for the job. Here are a few signs the advisor you’re interviewing isn’t a great fit.

1. They’re not clear about their fees

Just as you get paid for what you do, financial advisors have to earn money in the course of helping their clients. But you also deserve the right to know exactly what you’re being charged. And if a financial advisor isn’t transparent about their fees, then they’re probably not a good person to work with.

Similarly, if your advisor’s fee schedule is overly complicated, then you may want to run the other way. Financial advisors will commonly charge a fee that’s calculated as a percentage of assets under management. For clients with less than $1 million in assets, you’ll commonly see a fee of around 1%. So if you have a $200,000 portfolio, your annual fee would be 2%.

This doesn’t mean that’s what your advisor will charge. The point, however, is that you should have a clear sense of what you’ll be paying.

2. They focus on short-term returns

Investing works best as a long-term process. The stock market has delivered an average annual 10% return over the past 50 years, as measured by the S&P 500. But there were plenty of years during that window when the market performed quite poorly.

That’s why you’ll often hear that investing is something you should aim to do on a long-term basis. So if you come across a financial advisor who seems focused on short-term gains and returns, there’s a good chance they’re the wrong person to work with.

Someone who’s fixated on short-term returns might seek out investments that are overly risky. And since it’s your money on the line, that’s not a good thing.

3. They don’t seem to be listening to your goals

Maybe you’re hoping to retire early. Or maybe you want to save enough to be able to put your kids through college.

No matter your financial objectives, it’s the role of a financial advisor to help you meet them. So if your advisor doesn’t seem to be paying attention to your specific goals, you should probably move on.

Similarly, if your financial advisor is quick to dismiss your goals, that’s another bad sign. It may be that you’re 40 and have only $10,000 in your IRA. In that scenario, retiring early might be tough, but that doesn’t make it impossible. But if your financial advisor basically laughs in your face when you say that you’d like to retire early, it’s a sign that you’ve chosen the wrong person.

4. They won’t explain how they’d like to invest your money

Your financial advisor may be more familiar with different assets and investing strategies than you are. And they may have a really good plan for putting your money to work. But if you don’t understand how your money is being invested, and they’re not doing a good job of explaining things to you, then you may want to find someone else.

Educating clients is a big part of being a good financial advisor. If your advisor is quick to throw around different financial terms without slowing down to loop you in, they may have good intentions — but that doesn’t make them the ideal professional to work with.

Engaging the services of a financial advisor could improve your financial picture in a very big way. But it’s important to find the right person for the job, so be mindful of these red flags as you go about your search.

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Side hustles are a great way to make money. But here are three that don’t appeal to me at all. 

If you’ve been thinking about getting a side hustle, you’re in good company. Zapier reports that 40% of Americans held down a side gig in 2022. And if you’re able to carve out the time for a second job, the extra cash might benefit your finances in a very big way.

If you have credit card debt, for example, a side hustle could be your ticket to whittling it away. If your emergency fund needs work, a side hustle could make it possible to build up some cash reserves. And if you’re trying to buy a home, a side hustle could help you get closer to your down payment.

Now, I’ll admit that these days, I don’t really work a side hustle per se. That’s because I’m a self-employed freelance writer. So when I take on additional clients, I don’t consider it a side hustle so much as an extension of the job I already do.

But there was a point when I worked full time for a marketing company and did freelance writing gigs on the side. Back then, I used that money to build my savings account balance, pay for travel, and buy extra things for the home my husband and I had recently purchased.

If my writing work were to slow down in the near term, I’d definitely look to a side hustle to try to make up that income. But here are three gigs I really won’t consider.

1. Babysitting

I like kids, which is a good thing considering that I have three of them. But taking care of kids can be very draining. So the idea of having to look after kids that aren’t mine just doesn’t appeal to me.

It’s hard enough wrangling my gang to do homework and breaking up the fights that inevitably erupt on a daily basis. I’m not looking to repeat that process in another household.

2. Driving for a ride-hailing company

I’ve been driving for years and do it regularly to get to where I need to go. But driving is something I generally don’t enjoy doing. In fact, I find it stressful.

Maybe that’s because I live in an area where drivers tend to be rude, aggressive, or downright careless. And the frequent traffic doesn’t help. But all told, I know that having to spend extra time on the road as a side hustle would not be a good thing for me at all.

3. Social media marketing

Since I have a background in marketing and am a writer, pivoting to social media marketing as a side gig seems like it would be a good fit. The problem? I really don’t like social media.

The only reason I’m on social media is because without it, I’d miss out on updates for some of my kids’ clubs and activities. But I’ve found that spending time on social media isn’t actually so good for my mental health. So I wouldn’t want to be forced to do it more than necessary.

It’s important to find the right side hustle

Pushing yourself to work a second gig on top of a primary job is not an easy thing to do. After all, you’re giving up free time and making your schedule more hectic. So it’s important to find a side hustle that’s a good fit for you.

If there are certain side gigs that truly don’t appeal to you, don’t pursue them. Driving for a ride-hailing service may be a popular side hustle, and it’s one that can be lucrative. But if you hate to drive, or you hate the idea of having to come home late at night and search for parking in your crowded neighborhood, then it’s not the gig for you.

In fact, if anything, your ideal side hustle should be something you get some degree of enjoyment out of. This isn’t always possible — but remember, I said “ideal.” But even if you don’t love your side hustle, you also shouldn’t hate it.

For me, walking dogs and caring for pets would be a great side gig since I enjoy getting fresh air and exercise, and I’m an animal lover. You might love playing music. In that case, performing at birthday parties, corporate events, and cafes might be a good way to earn extra money while doing work you enjoy.

A side hustle that makes you miserable is one that’s unlikely to be sustainable. So your best bet is to take the time to find a gig that’s great for you, as well as your finances.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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