Investing for Retirement

Investing for Retirement While Keeping it Simple

Investing for retirement doesn’t have to be difficult. The most important thing is to make a plan and stick with it. One approach is dollar cost averaging. This investing strategy allows you to buy more of an investment when prices are low and less when prices are high. Millions have been made on this simple principle. Invest in things you know a lot about and feel secure with.

Feel like you just can’t afford to put anything away for the future right now? Do it in baby steps. The younger you start, the easier it is to incorporate into your lifestyle. By just putting away 5% every paycheck can make a world of difference in the quality of your retirement.

Why does an employer retirement plans work. First, the money comes out of your paycheck so it’s not like you are going to miss it. If you are with a company with a 401K plan, for example, the money is taken out of your paycheck before it is taxed by the IRS. Therefore your taxable income is reduced and you pay less in current taxes. This is called pre-tax savings. The growth on your account is not taxed until you take it out or withdraw it. Your money has the best chance to grow without being reduced by current taxes.

It is also called tax deferred compounding. It has the potential to greatly increase your earnings over a time. With the power of compounding when you invest even a small amount early in your career can mean huge things at retirement time. Just remember to keep your investment strategy simple.

Let’s look at a few of the more popular options available to an investor who likes to keep things relatively simple and easy:

Bonds

A bond is basically a loan made to a corporation or a government. In return for borrowing your money, bonds may pay a fixed amount of interest. Bonds are sensitive to interest rates. Rising rates can impact the value of bond negatively, when lower rates can increase the value of a bond. They all have various levels of risk that are involved.

Stocks

Stocks represent a share of ownership in a company. They also have different levels of risk. Stocks are also exposed to market risk, which means the market as a whole may go though a period of great increase or decline. Risk is a personal choice. Some investments are more volatile than others. That means they swing up and down without a lot of warning. Let it be said that there is no growth without risk.

Finding the Right Strategy

Identify your own personal investor profile. Are you a conservative or aggressive investor? Once you have identified which one you are, then you are ready to determine the funds which are best for you. Be honest with yourself. The tendency is to start too conservative and then get aggressive at the end to make up for lost ground. That can lead to disaster. The younger you are the more risk you can assume. Then as you get about 10 year or so away from retirement, it should be time to find a safer harbor.

Where to go to get the help you need?

Find a broker or financial planner you know will make the right recommendations for your benefit, not his or her pocket book.

So, you may also go through some trial and error. As long as you find something that works for you, that is all that matters. Unless you make a living in the financial market, ask around for someone who is good, knowledgable and trustworthy. Be patient and all things will turn out for the better.

 

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