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Nest Egg Fortification

As retirement draws closer and closer, nest eggs become more sacred; the key to eventual financial security, if all goes well.

Despite reminders from financial advisors about the need to continue growing a portfolio through investment diversification, retirees and those soon-to-retire often get cold feet about risky investments too close to retirement. Coupled with the impending loss of a steady paycheck, local investment gurus say those cold feet may result in a lukewarm, too-timid investment strategy equaling dissatisfactory returns.

While it's important to pay attention to risk and savings when retirement is near, financial planners suggest keeping retirement-portfolio stock allocations close to 75 percent of assets, and no less than 50 percent, according to the Journal of Financial Planning.

A nest egg, says Rogue Valley certified financial planner Lyn Boening, is like bonus money. "A nest egg is money above and beyond what you're going to have for retirement savings. It's windfall money, money that comes to you, not from regular income," Boening says. "If you don't have that nest egg, take more out of your income and build one… we like to think of a nest egg as an emergency/ opportunity fund. There's nothing like the opportunity to get a little chunk of money, whether you save it or it comes to you all at once, and have the experience to invest that money and see it grow."

The most important aspect of building a nest egg, once it's big enough to begin investing, adds Boening, is diversification. A combination of high-risk and low-risk investment can prove both safe and profitable at the same time.

Fixed income investments, such as bonds, are a stable investment type, but offer little growth on their own unless an investor starts with a sizeable amount of savings.

More predictable investment vehicles include bonds, bank savings certificates and money market accounts. While such investments might be dull, they provide stable interest income.

Higher-risk options, such as volatile stocks in small companies or those representing companies with profit fluctuations, can prove damaging when the economy takes a turn for the worse, says Oregon Pacific Financial Advisors Inc. president Don Todd. A stock, mutual fund or individual stock can fall 50 percent or more in value if the market makes a turn for the worse.

In good times, however, high-risk investments bring bigger returns. Mixing high-risk and low-risk investments to ensure financial security, Todd notes, is a matter of considering the odds.

"If you plant carrots, do you plant one seed in the hole and then hope it sprouts up? Or do you plant several and then thin them out later? If you want nice, big, juicy carrots, you need many seeds in one hole," says Todd. "When we seek return, we get risk, when we manage our risk, we get return." In other words, plant lots of carrots.

A solid portfolio - or nest egg - will include high-risk investments, such as small companies and stock for new products, and low-risk investments like precious metals and savings bonds. Room to wiggle in either direction, Todd notes, depends on personality. A common myth relates age to acceptable investment risk.

"The perception is, if you're younger, you can accept more risk than if you're older," Todd says. "I've found that not to be true. I've found that we build our portfolios around our risk tolerance based on our emotions. I've got 80-year-olds who invest aggressively and 20-year-olds who invest more conservatively."

Finally, Boening urges eventual retirees to consider both short and long-term investments. "You want to have some money in short-term type investments that won't penalize you to take out early, and some in the long-term that will be there. It's important to make your nest egg work for you. To do that, you can't have all your eggs in one basket."

Consult a financial professional before making investment decisions.