A 2021 survey revealed that 40% of Americans fear retirement. They’re so afraid, they fear retirement more than death!
It’s easy to see why when you look more closely at the study. It turns out that 20% of the survey participants have nothing saved for retirement. Only 47% have a pension that will give them income beyond Social Security payments.
These numbers are scary, but it’s not too late to change them.
There’s an investment vehicle for you if you’re close to retirement age or it’s still years away.
You don’t have to fear retirement anymore. Take control of your future and choose the right investment strategies to fund your retirement.
Read this guide to choose the right investment vehicle so you can retire without fear.
What Is an Investment Vehicle?
An investment vehicle isn’t something that you drive around that spits out money. That sounds nice, but it’s not how it works.
An investment vehicle is a financial product that investors use to see a return on investment. Savings accounts, certificates of deposit (CDs), stocks, bonds, mutual funds, real estate, and cryptocurrency are all examples of investment vehicles.
There are different types of investment vehicles.
A direct or ownership investment is one where you directly choose and purchase the asset. This is common in real estate property and individual stock investments.
Collectibles like fine art pieces and antiques are direct investments if you resell them for a profit.
Indirect investment vehicles get managed by portfolio managers. These are mutual funds, real estate investment trusts, real estate crowdfunding, or annuities.
Tips to Choose the Right Investment Vehicle
What type of investment vehicle is best for your retirement? Start by figuring out how much you need for retirement.
The good news is that it’s probably not as much as you think. Your retirement income should be between 70% and 80% of your current income.
Take into consideration health care costs and cost of living increases. Don’t forget about fun things like going to plays and travel, too.
Your age and aversion to risk play a big part in choosing investment strategies.
If you’re younger, you have more time before you retire. You can take a risk with some of your retirement funds and opt for aggressive strategies.
The aggressive investment strategies carry more risk, but they tend to have a higher return on investment.
A person with many years to hit retirement age can take a conservative approach, too. They have time on their side to let the investments grow slowly.
For those closer to retirement, with little saved up, you have to use an aggressive investment vehicle. You need something that generates a high return on investment.
Taxation Considerations
The one thing you need to keep in mind as you’re building your retirement portfolio is the amount of tax owed.
Different investment vehicles have different tax consequences when you cash them out for retirement.
A 401(k) lets you make contributions from your income before taxes. This lowers the amount of taxes owed as you save for retirement.
A Roth IRA has you paying taxes on your contributions. However, you take the funds out tax-free in retirement.
If you sell a real estate investment at a profit, you’ll have to pay capital gains taxes. You could leverage a 1031 exchange if you plan to purchase another property after the sale.
Consult with a financial or tax professional to fully understand the tax consequences now and when you retire. This will save you from a lot of surprises down the road.
Have More Than One Investment Vehicle
As you plan out your investment vehicle for retirement, make sure you utilize one of the top investment strategies. Diversify your investments.
Yes, you need to have more than one investment vehicle for retirement.
Think of diversification as hedging your bets.
Diversification reduces your risk. If you put all of your retirement savings into a single investment vehicle, you can lose your retirement if that investment vehicle declines.
Take your retirement funds and distribute the funds across several vehicles like stocks and bonds and conservative mutual funds.
The stocks can lose money, but you don’t lose everything. You might be able to make up for some of those losses if the mutual funds see a small return.
You can diversify within each investment vehicle. Real estate investing is a great example of diversifying within an investment vehicle.
Let’s say you start out with a rental property purchase. You maintain the property and rent it out for passive income. The passive income is great, but if the rental market declines, so does your passive income.
The real estate market could also nosedive, which could mean you owe more on the mortgage than the property is worth. Both situations will devastate your retirement plans.
You can invest in a rental property as a direct investment vehicle and fund a development as an indirect investment vehicle.
View this site for more information about building a complementary real estate strategy in addition to your existing investments.
Retire Without Fear With the Right Investment Strategies
Retirement can seem scary if you’re staring at a ton of debt and have nothing set aside for retirement. It doesn’t have to be with the right investment strategies in place.
You’ll be able to pick a core investment vehicle and diversify your investment to reduce your risk. This lets you enjoy retirement because you have plenty of retirement funds.
If you got a lot out of this guide to investment vehicles, you’ll enjoy the other financial tips on this site. Click on the Finance tab at the top and check them out today.