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How to Leave a Secured Investment Portfolio for the Next Generation

Aug 24 2011

SHENYANG, CHINA - JANUARY 15:   A man watches ...

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The recent financial crunch left a number of investors out of the share market. Investors who were retired from any regular job received the deadliest of blows. Many of them invested their life savings only to lose everything with the fall. Thus the question of asset allocation is of vital importance.  What strategy is the right one to make the money last longer? Here comes some advice on your personal finance to make your money go a long way. It is not, however, for those who have amassed enough wealth to leave a legacy for their next few generations.

People tend to worry that the money they have saved might not last for long. You can’t really blame them, considering all the ups and downs we have experienced in just one decade. Even the most secure investment has some pitfalls. For example, Treasury bills have long been considered a risk-free tool to invest on. Still the proposal of the raising debt ceiling has already exposed investors to risk. Many investors started to buy precious metals instead.

If you are fortunate enough to have a significant amount of savings then you have wider options in terms of investment decisions than those who are struggling to support themselves with their savings. A substantial amount of money will allow you the freedom of spreading your money over a number of options and thus reducing the risk. The following advice might be helpful:

Curb your stock investment

Dividend stocks are particularly popular among the retirees due to their lucrative growth potential. But high growth means high risk as well. It might be a wiser choice to increase your investment on bonds, which definitely offer a relatively low return on your money. But investing on bonds is worthwhile; they do make your finance portfolio less volatile. That's worthwhile, even if it means less growth for your heirs.

Consider Roth conversion

Apparently, a Roth conversion might look like a meaningless action. It will make you pay income tax now while you have the choice of paying later otherwise. But a Roth conversion gives you two important benefits. Firstly, the tax is not counted on your estate at death, which can save as much as 45% in estate taxes. And secondly, your heirs will enjoy tax free returns from your Roth for decades.

Have some High-flying stocks

This advice contradicts the first one. Nevertheless, it is only for those who have enough money left after investing on low-risk lower-profit instruments such as bonds or CDs. Regarding this decision, you need to consider share price appreciation as the basis of your decision, not the potential amount of dividends. Thus, buying some non-dividend yet high-growth stocks such as Google or Priceline can leave your heirs with a great potential of profits. 

A balanced portfolio with your savings is a fair reward for all the hard work you have done through your life. You can decide to enjoy all the rewards yourself or you can choose to leave something valuable after your death. If your choice is the latter, make some effort to be sure your investment will not be wasted with a fickle shift in economy.

Article written by Debbie who regularly writes about finance and business topics such as foreign exchange and currency exchange.

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