Investment strategies can be the most confounding of topics. They often read like a medical textbook and have you yawning by the second paragraph. Picked up a copy of Money magazine lately? You’ll find about 20-something new mutual funds to invest in with each new magazine addition and advice on picking some astonishingly good funds (allegedly). Further reading will have you believing that all of them will yield superior performance and only a fool would not jump right in.
The truth is that the oft-recommended high yield mutual funds rarely pan out to be more than the “average” funds that you could have picked yourself. Long-term investing has a way of balancing out your returns and unless you are fortunate enough to find that diamond fund in the rough, you’re going to do well by simply investing in the tried and true funds that work well for the majority of people.
The point is.. you need to get started with your investments now. This is the real secret to retiring wealthy.
The unfortunate consequence of “trying to make sense of it all” is putting off your retirement planning and not cashing in on compound interest that comes immediately after depositing that first dollar to savings.
If you can manage to put $5,000 in savings, while still in your early twenties, there’s every reason to expect a 7% return on your investment. That’s a fairly average return and it’s a good one. As each year passes, that money is compounded and starts to really add up.
The Simple Man Strategy
So you didn’t choose finance as your college major and don’t get a firm erection when processing through thousands of different options? You don’t have the extra income to hire a personal financial consultant who swears by a system that will give you far greater returns than doing it yourself (unlikely)? What’s the best recourse for ensuring you retire a respectable amount of money and maintaining some sense of security that you won’t lose all your money in the stock market?
It’s called diversification. It works and you can do it yourself. As you draw nearer to retirement, spread those investments around. Don’t put all those eggs in one basket and have your entire life savings hedging on the outcome of one fund.
If you’re a young man, feel free to take a shot on the big return and put those savings toward one or two promising investments. If they pan out, the return can be enormous but if they fail, you’ve still got time to rebuild.
If you prefer to be more security-minded from the start, diversify right from the beginning and appreciate the opportunity for a nice return, even at an average return rate.
Most online investment companies make it easy for you by providing a “target retirement” plan. Simply pick your preferred method of investing (from safe to aggressive) and they’ll spread your investment money across the associated funds. Just remember that the larger the risk (aggresive), the larger your potential return but the greater chance that the investment might not pan out.
Make a 401K Your First Option
A 401k savings plan is available to a great number of people who ignore the opportunity. That’s bordering on shameful. A 401(k) allows for employer matching contributions up to a specified percentage. That’s free money you won’t find elsewhere while investing. Passing up on this opportunity is mistake, if a 401k opportunity exists for you.
Even if you aren’t in a position to contribute 10% or more to a 401k account, investments can add up quickly by simply contributing the amount that your company will match (usually 3-5%).
Consider a Roth IRA
Don’t have a company 401(k) plan? A Roth IRA is another excellent option and your employer isn’t involved with this retirement account. Like a 401k, a Roth IRA means that you’re not taxed today for money put towards retirement.
A Roth IRA will give you more investment choices and that may or may not be something you’re interested in when starting out with investing.
Though the plans are very similar, there’s a few differences between an Roth IRA and 401(k) plan, so take some time to decide which is best for you.
The simplest and most effective method of investing is to invest in several different funds and start getting a return by making that investment today. Head over to Fidelity or Vanguard today and open an investment account. Don’t wait. Retirement is not as far away as you think it is.