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5 Tips to Help You Find Financial Freedom in Retirement

Answers to popular investment questions from the African American community

When planning for your golden years, it's important to educate yourself on the best ways to achieve financial freedom. Sometimes it can be tough to know where to begin. We've asked Lee Baker, a Certified Financial Planner, Board of Standards Inc.® planner in Atlanta, to answer five of the questions about investing he gets most often from the African American community.

Q: My friends tell me to invest in real estate instead of the stock market. Are they right?

A: Studies have shown a high tendency for African Americans to invest in real estate more than other asset classes. Never forget what Momma said about putting all of your eggs in one basket. Don't do it!

Lee Baker-AARP Education and Outreach interview on your financial security

Portrait of Lee Baker — Photo by Marie Tremble

It's really not a question of real estate or stocks but how much of each. When you hear people talk about asset allocation this question gets to the heart of it. For most of us, we should have a little bit of a lot of different things. Stocks of companies based in the U.S. and around the globe have a place in our investment baskets. In addition, we need to look at bonds as well from the same perspective. Your friend is right to tell you to look at real estate. One thing to keep in mind is that all of the asset classes you would want to have in your portfolio can be accessed using mutual funds. For most individuals this is the best option to get you the diversification that you need.

Q: I'm participating in my company 401(k) plan but I started late. How should I invest my assets?

A: The important thing is that you started, so give yourself a pat on the back. A recent study by the Vanguard Group showed that participation in 401(k) plans increased significantly for African Americans who were in plans with auto enrollment. Participation in plans with voluntary enrollment stood at 59 percent but increased to 90 percent with auto enrollment. If you started contributing late and are fairly close to retirement, you don't have the luxury of time in the market to help build up your nest egg. You want to focus most of your attention on the amount that you can put away for retirement. The more you can put in, the more you can make up for the loss of time in the plan. With that being said, you want to lighten up on the amount of equities in your 401(k) plan. This does not mean don't have any stocks or real estate funds but not nearly as much as you would if you had many years until retirement. I don't like rules of thumb, but I will say that very few of my clients nearing retirement have more than 65 percent of their portfolio in equities.

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