How to Invest For Retirement

How to invest for retirement is a subject that should be taught in school. That may seem a bit extravagant when retirement seems so far in the distance at an early ago, but that's the whole point. Saving and investing for retirement is so easy when we start early enough; it gets extremely difficult the older we get.

Just think about this for a moment: a working 20-year-old who saves just $3.50 a day will have $996,402 at age 65 if his or her money earns 10%. That's $105 a month. Wait until 25 and you need almost twice as much: $6.67 a day, to accumulate almost $1.2 million. A 29-year-old needs to save $10 a day to achieve the same goal. A 39-year-old needs $16.67 a day - $500 a month ?but that's not all: he needs to make a more difficult 12% average rate of return on his money.

Here we're going to show you how to save for retirement and elsewhere on this site we'll show you how to get 10% or more with a good measure of safety, but you should pay close attention to the message in the previous paragraph.

There Are No Realistic Shortcuts

Younger people think retirement is for old people, and they are right. But saving for retirement and investing for retirement is for young people, the younger the better.

Investing seems to be such a complicated business and when retirement funds are involved it is scary to many people. That's why we believe how to invest for retirement should be taught in school but since it is not, we will try to fill the void here.

Successfully building a retirement nest egg is about far more than money. It's even about far more than a comfortable retirement. Half of the marriages in the U.S fail, failures that carry a great deal of heartache for couples, children and other family members and friends. At the root of a large number of family breakups is a lack of money and the worry and short tempers this creates. Knowing you are making financial progress can alleviate a large amount of this worry.

There's a social side to this, too. It has long been known that Social Security cannot support the increasing number of retirees depending on it. Next year, the first of the post-World War II babies reach the ripe old age of 65. The Baby Boomers represent the largest population explosion in history. That explosion is about to hit Social Security with full force. Fewer people in the workforce, more people to be supported? The mathematics doesn't work.

More people with greater savings would solve the problem for future generations and for our bankrupt pension plans.

It you are 55 and have little in the way of savings, we cannot show you how to invest for retirement and have $1 million; we can only show you how to be a little better off than you might otherwise be ?so continue reading and don't be too disappointed.

One productive thing you can do is tell your children and grandchildren about the lessons we teach. We can certainly show them how to invest for retirement, a rich retirement at that. It is far easier than most people think. Wall Street makes it much more complicated than it needs to be; if they didn't, you wouldn't need Wall Street.

The Important Elements

Good retirement investment planning requires a number of straightforward elements. These elements include:

  • A systematic approach to investing
  • Discipline to not change the plan
  • Confidence in the long-term success of the plan no matter what the stock market or economy does in the short term
  • Proper diversification
  • Keeping expenses to a minimum
  • Sufficient time to work

A systematic approach starts with understanding which investment vehicles produce the best return over time. The phrase over time is important; the short term is influenced by too many unpredictable possibilities. There is plenty of evidence that a stock portfolio will trump bonds, mutual funds, certificates of deposit, treasury bills and real estate by a wide margin.

Is This For You?

A right approach to retirement investment planning starts with you, not with the market. This is the first lesson of how to invest for retirement.

You need to be honest with yourself.

Investing in stocks always carries a degree of short-term risk. Understanding the degree of risk you can bear without losing sleep is important. If you take on more risk than that you are likely to panic and lock in any losses when you flee in panic at the end of a falling market – just before it starts back up.

Then you need a method for buying low and selling high over time, all without guesses or deliberation.

Trickling savings in, so much every month, will help you to take advantage of falling markets. As the market falls, you buy at ever-lower prices and increase profit when the market turns favorable.

Protecting What You Have is The Key

Gaining from stocks is less about profit and more about protecting what you have. Too many novice investors get that backwards and lose as a result. The stock market itself, with average annual rates of return of between 10 and 11 percent since before The Great Depression, will look after the winning side of the balance sheet if you preserve capital long enough to take advantage of it.

So how do you select the stocks to buy? That is a lot easier than you might think. If you go about it the right way, it doesn't matter too much what you buy just so long as you diversify properly.

Proper diversification

What does that mean? It means you need shares in roughly 20 companies each in different industries. Those two factors are important considerations. You would not want to buy shares in a tire manufacturer and a car manufacturer, or in a construction company and a cement supplier.

Within those rules, what do you or your friends shop for? What is your favorite brand of popular car? Your favorite supplier of food at the grocery store? What large manufacturer of toiletries do you favor? You may not be able to come up with 20 ideas from your own purchases. It's unlikely you drill for oil, buy steel or run a railway – but discovering which companies are the more reliable, profitable and growing in other fields is not too difficult when you think about how to invest for retirement.

Tweaks to do better than average

Don't sweat it! Twenty companies are going to have good choices and bad, just like the major indexes.

Did I mention they average between 10 and 11 percent? Your job, once you have made your selections, is to manage them in some simple ways that should result in you getting a better return than the indexes.

You'll see how to do that in various articles on this site.

Brokerage and mutual fund fees can make a large dent in your profits – even when your profits decline in the occasional falling market.

We'll show you how to keep expenses in check when we talk about reducing them elsewhere on this site.

Retirement investment planning also means allowing the plan time to work.

A 25-year-old who saves $6.67 a day – money that can otherwise dribble away unnoticed – will have more than $1.1 million by age 65 with a 10% average rate of return. This is important for young people who want to know how to invest for retirement.

A plan, a system and the discipline to stick to it is essential. Remember that and profits and a comfortable retirement are easy no matter what the market does in the short term.



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