How not to destroy your retirement portfolio

Retirement » How Not To Destroy Your Retirement Portfolio

Limit exposure to illiquid investments
Limit exposure to illiquid investments © Matthew Benoit/

A cardinal rule of investing is to stay liquid. But with current interest rates still so low, many investors have been tempted to trade off liquidity for greater returns. They could get burned.

Master limited partnerships, nontraded real estate investment trusts, or REITs, and alternative investments have gained in popularity.

But beware: Investors who rely on their investment portfolio for current expenses can get stuck.

"Some of these investments may tie up your principal for seven to 10 years," says Larry Luxenberg, a financial adviser and partner at Lexington Avenue Capital Management in New City, N.Y. "While an investor may not plan to touch principal for many years, circumstances can change, and these investments can limit their flexibility or trigger penalties."

Should you want to sell your house and move to a retirement area, change your estate plan or need liquidity for your estate, illiquid investments could prove an obstacle. Relying heavily on illiquid investments may block the repositioning of holdings in your retirement portfolio when markets or circumstances warrant these shifts.

At the least, advises Luxenberg, an investor should get adequately compensated for the lack of liquidity and limit the portfolio weighting of these investments to perhaps no more than 10 percent to 15 percent.

Achieving retirement success Whether your retirement plans involve a part-time job or full-time leisure, be sure to think through the details to ensure your dreams come true.


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