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Role of mutual funds in your retirement planning

Retirement planning is a crucial part of financial matters which needs to be done properly. You don’t want to linger in your 60s with financial misery so long as you have the time to avoid it. The mutual fund provides a great opportunity to be well-prepared for post-retirement life and live comfortably. It has great potential to generate corpus and save tax abiding the inflating market. The mutual funds can be utilized to generate wealth and help you plan for retirement. Let us see how it can be done.

1. Invest in balanced funds

The balanced funds are also called ‘hybrid funds’ where they invest in the combination of stocks, bonds, and money market. Typically, 40% of the assets are invested in stocks, 50% in bonds and the remaining 10% in the money market. Of course one can change this combination as per the requirement. With balanced funds, the investor gets balanced returns, i.e. he will be benefited from the high returns of stocks and will also get the security of bonds. While planning for retirement, balanced mutual funds offer great stability to your financial matters with a combined investment.

2. Dividend-paying funds

Investing in mutual funds that offer dividends is a smart way of diversifying a portfolio. Dividends are the best source of regular income which can be used to buy more shares in the mutual fund. If retirement planning is your objective then dividend-paying funds would be an appropriate option for you to get regular income. Also, by buying more shares with dividends you will be increasing your income sources. So if regular income is not your priority for the time being then reinvesting it would a wise decision.

3. Use of money market

Although money market funds do not offer high yield, they can a useful source investment for retirement. It is better to use principal money market account namely taxable money market, brokerage accounts to reap the benefits. This scheme is useful for those who have higher tax brackets.

4. Use of fixed-income funds

Some mutual funds are specifically classified as ‘retirement income funds’. Usually, the best retirement income funds have the objective to provide the preservation of assets, income, and the growth that are prioritized in that order. To put it simply, the first priority of retirement is to achieve positive returns, second is to get high returns against the inflated market, and third is to grow your assets. If you can fund such funds, you will be able to get the best possible benefits. Retirement is a huge responsibility which should be dealt with efficiently. You should be able to get regular income and have wealth generated for any uncalled situations. The mutual funds are the best way to prepare for retirement as these options illustrate us. You can get a healthy return while saving a sizable sum.

Post Author: Fathiyya Al Shaikh

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