8 Of The Best Investments For Boomers Concerned About Retirement

Nearly half of all baby boomers have already reached retirement age, yet 45% of baby boomers have no retirement savings whatsoever, according to the Insured Retirement Institute.

For boomers wondering where to start when it comes to retirement saving and investing, there are plenty of options out there that can both limit risk and potentially generate big returns. Here are eight ways to invest for retirement.

1. Savings And Cash Accounts

One of the most risk-free places to put retirement funds is in high-yield savings accounts, cash accounts or certificates of deposit. These options are FDIC insured for up to $250,000 per person per bank, but the typical yields are relatively low. Today, investors can expect to max out their annual cash returns in the 2% to 2.75% range, slightly higher than the Federal Reserve’s 2% inflation target.

2. Bonds

Bonds essentially allow companies and governments to borrow money from investors and pay them back over time with interest. U.S. Treasury bonds are some of the safest bonds available for investors, but their returns are relatively lackluster. Yields on 10-year Treasuries is currently just 2.05%.

Investors can get slightly higher returns from investment-grade corporate bonds issued by companies that have high credit ratings.

The iShares IBoxx $ Invest Grade Corp Bd Fd LQD is a diversified fund of investment-grade corporate bonds from companies like JPMorgan Chase & Co. JPM and Bank of America Corp BAC. The LQD fund has a 3.4% annual yield. High-yield corporate bonds issued by companies with sub-investment-grade credit ratings are more risky investments but often provide much higher yields.

The iShares iBoxx $ High Yid Corp Bond HYG is a diversified play on bonds from companies like Sprint Corp S and Teva Pharmaceutical Industries Ltd TEVA. These companies have a higher risk of failure, but the HYG fund pays a 5.3% annual yield.

See Also: 8 Best Places To Put Leftover Cash To Work

3. Equity ETFs

Any American who remembers the 2008 financial crisis knows exactly how risky and volatile the stock market can be. Despite the near-term risk, the S&P 500 has been remarkably consistent throughout the years when it comes to long-term performance.

Despite a number of market booms and busts — World War II, the Great Depression, the Financial Crisis and any number of major economic disruptions — the 30-year rolling annual return of the S&P 500 has always stayed between around 8% and 15%. Low-cost S&P 500 index ETFs, such as the VANGUARD IX FUN/S&P 500 ETF SHS NEW VOO can give retirement investors both access to these returns and safety via diversification.

For investors willing to risk a bit more for higher returns, small-cap ETFs like the SCHWAB STRATEGI/US SMALL-CAP ETF SCHA or emerging market ETFs like the iShares MSCI Emerging Markets Indx EEM can offer higher potential upside and lower potential downside.

4. Annuities

Annuities are similar to bonds in that an investor turns over cash now in exchange for a source of fixed income during retirement. Annuities can be structured in countless different ways.

For example, lifetime annuities can provide monthly payments for retirees every month until they die. The downside to annuities is that investors may have to pay a large purchase commission and may be charged a steep early withdrawal penalty if they need to access their cash early.

5. Mutual Funds

Mutual funds are professionally-managed portfolios of investments, typically stocks and bonds. Mutual funds are one of the most popular retirement investment options, accounting for as much as 68% of individual retirement account assets and 48% of 401(k) assets as of 2013. Mutual fund returns can vary widely, much like returns on ETFs, based on the allocation of the fund.

6. Individual Stocks

One of the most risky approaches to retirement investing is buying individual stocks. Investors who pick winners can really amp up their returns.

For example, Netflix, Inc. NFLX shares have gained 417% in the past five years compared to just a 52% gain for the S&P 500 as a whole. However, Tesla, Inc. TSLA stock has gained just 18% in that same stretch, and its investors have missed out on much of the overall market returns.

Retirement investors considering buying individual stocks can target large, blue-chip companies with stable businesses to reduce risk, such as the 30 components of the Dow Jones Industrial Average. In addition, increasing the number of different stocks held in a portfolio reduces the risks associated with each individual company.

See Also: Compounding: The Boring Key To Huge Long-Term Investing Returns

7. Precious Metals

Precious metals like gold and silver are popular investments among retirees, but their historical returns haven’t been particularly great. Over the past 40 years, the price of silver has risen from $9.05/oz to just $15.04/oz, an average annual return of only 1.65%.

Precious metals tend to help investors protect against inflation in the long-term. However, since the metals don't produce income, their only value comes from a combination of market supply and demand.

8. Real Estate

The rise of real estate investment trusts has made investing in real estate easier than ever. Retirees don’t need to go through the hassle of buying actual land when they can buy REITs on the public market just like stocks.

Diversified REITs funds like the VANGUARD IX FUN/RL EST IX FD ETF VNQ offer investors exposure to essentially the entire real estate universe. There are also plenty of REITs that specialize in particular types of real estate, including shopping mall REIT Simon Property Group Inc SPG, storage REIT Public Storage PSA and senior housing REIT Welltower Inc WELL.

REITs often pay large yields of 4% or greater, but portions of their payouts may be taxed as ordinary income rather than dividends. Retirement investors should make sure they fully understand the nuances of REIT dividend tax law to avoid making potentially costly tax mistake.