Getting ready for retirement? It’s time to make the most of your investments and prepare for the golden years. Here are some smart investments near retirement that you should consider.

It’s been a long road, but at last, you’re almost there: retirement is on the horizon. Within the next few years, you’re planning to leave your job, relax, and enjoy life without work dominating your time.

But now isn’t the time to wind down all of your investments. After all, there’s still time for your money to go the extra mile.

Here’s a look at smart investments near retirement that every retiree should consider.

The Rules of Investing Near Retirement

First, you have to assess the rules of investing as you near retirement.

Your retirement portfolio has to achieve two goals, which often seem to work in opposition:

1. Growth (to protect against inflation)
2. Capital preservation (to protect what you already have)

The best way to achieve this balance is to use the total return strategy, which uses your whole portfolio to generate growth from a variety of sources, with the goal of generating a total annual return from all available sources. Most institutional investors now rely on this strategy.

It’s a step away from the interest only approach, in which you don’t touch the capital and live on interest and dividends (the problem being that you need to drop a significant amount of capital up front to earn any interest that’s livable). A moderate approach combines the total return strategy with guaranteed income sources like Social Security, where you use guaranteed income to cover fixed expenses and treat the rest as investable income (those who know the cover-the-basics approach have heard of this before).

Either way, you’re going to have to dial back risk compared to what you used when you were younger. Once you retire, you no longer have an income stream, so you can’t afford to sacrifice very much of the capital you already have. That said, there are ways to achieve growth while still minimizing risk—it’s all about the right mindset. In the bucket strategy, for example, you can turn retirement stages into a microcosm of your risk approach over your lifetime, where investments you need immediately have the lowest risk exposure and those you need in 15 or 20 years have the most.

Smart Investments Near Retirement

What does that mean for your assets? Here are a few assets and asset strategies to consider.

Max Out Your 401(k), Consider an IRA Rollover, or Both

First and foremost, if you’re not already maxing out your 401(k) contributions, now is the time to get on board.

The period before retirement is when you hit peak lifetime earnings, which means you have the best chance to throw whatever you can afford at your financial future. The money you throw in won’t have much time to grow, but even so, every red cent is one extra cent you can count on in retirement. This is especially true if your employer does matching contributions—fully holding them to their word. There’s no good reason not to.

Plus, if you’re over 50, you can tack on an extra $6,000 on top of your annual maximum contribution as a catch-up contribution.

If you’ve already maxed out your 401(k) and hit the catch-up contribution, consider an IRA rollover. Even if you haven’t, an IRA rollover might be worth it. A rollover is when you redeposit a pre-retirement payment into another retirement account or IRA. In doing so, you don’t pay taxes until you withdraw from the new plan.

This is a great choice for dedicated retirement investors because IRAs offer much more freedom than 401(k)s. You can invest in almost anything in an IRA, which means more diversification (the golden mantra of successful retirement planning).

Annuities

In terms of actual assets, annuities are a good choice for soon-to-be retirees. An annuity is a contract between you and an insurance company. You purchase an annuity as a lump-sum payment or as a series of payments over time. The insurance company, in turn, makes payments to you over a period. There are three types of annuities:

1. Fixed
2. Variable
3. Indexed

A fixed annuity promises a minimum interest rate and a fixed periodic payment amount for a predetermined period. A variable annuity, on the other hand, allows you to direct your payments toward various investment options, which can offer greater returns but also risks losing value. Indexed annuities credit you with a return based on a stock market index.

Regardless of which type you choose, annuities grow tax-deferred. They are expensive and complex, though, so talk to a financial adviser before deciding if annuities are the right choice.

Bond Ladders

For those interested in risk-averse retirement income, bond laddering is a popular strategy. A bond ladder is a portfolio of individual bonds or certificates of deposit that each mature at a different date. Because of these staggered future dates, you earn income on the bonds over time rather than buying bonds as you go.

The nice thing about a bond ladder is that it takes advantage of reliable bond income while protecting you from interest over time. If interest rates have a sustained decrease over time, though, each bond will drop in value and force you to sell early.

That said, there’s serious appeal in a bond ladder if you can invest the initial capital to do your future self a favor. Instead of holding a single $100,000 bond due in 10 years, you can hold 10 bonds for $10,000 each, with each maturing one year later than the one before it. That gives you a reliable $10,000 per year in principal repayment for the next decade, which you can then reinvest.

Don’t Neglect ETFs

Finally, if you’re worried about low-cost diversification, don’t neglect ETFs.

An exchange-traded fund, or ETF, is a fund that can be bought and sold on the stock exchange like a stock, but it actually contains a basket of securities tracking a particular market index. This gives you the typical characteristics of an index fund, the diversification benefits of a mutual fund, and liquidity comparable to a stock.

For those nearing retirement, be careful to select an ETF built on a low-risk index, like the S&P 500 Low Volatility High Dividend Index.

Diversify for Retirement with Blue-Chip Art Investing

If you’re nearing retirement, now is the time to make sure your portfolio is built to support you in the decades ahead. Don’t be afraid to diversify and use tools at your disposal—especially assets that hedge against stock market volatility.

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