Beginner’s Guide to Saving for Retirement
December 4, 2020
Many young people would like to begin investing and saving for retirement but aren’t sure where to start. Whether you’ve just received your diploma, started your career or you’re ready to invest in a retirement account, we’ve created a guide to help you invest your money.
The Importance of Investing Early
Most financial experts will tell you that one of the most important steps you can take is to begin investing and saving money early. What are the benefits of getting started early?
Your Expenses are Low When you’re young, life is inexpensive. As you get older, it’s only natural that your living expenses will go up. Investing any extra funds you have available while your expenses are low is a simple way to increase your long-term wealth.
Compounding Interest Compounding interest is a fancy way to say “interest earned on the interest that you’ve previously accrued” and it’s a powerful force when it comes to building wealth.
Higher Risk Tolerance The more time you have, the more financial risk you can take. You’ll have time to ride out any financial storms and recessions. Someone with 40 years left until retirements will have a better chance of making money on high risk investments than someone investing for only 5 years.
With uncertainty on the horizon, it is more important than ever for you as an investor to be prepared for more dips in stock prices. Here are some tips:
If your employer offers a match, make sure you contribute enough to get the maximum match available. The average match is up to half of 6% of your pre-tax income, but check with your company’s HR department to find out your company’s policy.
Staying diversified is critical for building a portfolio that is resilient to market shocks. By adding multiple unrelated asset classes to your portfolio, you reduce losses in the event of a downturn in the stock market.
With the stock market as heated and volatile as it is currently, it can be tempting for investors to try and wait for the “right” moment to invest. This is often a mistake. It is impossible to consistently time the right time to buy or sell. While it’s now clear that March 2020 was an excellent time to invest, hindsight is always 20/20.
The further you can stretch your investment goals, the easier it is to look past short-term volatility. Many investors get nervous and sell when the market takes a downturn. This is a sure-fire way of losing money in the long run. Instead, the best approach is to understand your risk tolerance, allocate your portfolio in a risk-appropriate manner, and ride out the dips in the market.
When you choose to invest at a young age, it could be one of the wisest decisions of your life. You will be providing yourself with the means to retire, but also creating a life of security and freedom. If you would like to discuss your retirement savings needs with one of our financial advisors please contact Linda Phillips at 732-594-7705.