Saving for Retirement – The Sooner the Better
When it comes to retirement, nothing rings truer than the phrase “the sooner the better”
It’s too early for me to worry about retirement. This is the most common yet risky mindset of a lot of young people, the reason could be that they’re not able to picture themselves when they’re older. Yes, retirement may be a long way off and feels even longer for someone just starting their working years, but there are a couple of reasons that retirement planning is particularly important for young people.
“One of the problems that come with a lack of investing for most young people is the complexity of most products that would leave one confused and not knowing where to start,” says Lance Solms, Head of Itransact. “Smart, disciplined, regular investment in a diverse portfolio, can produce good long-term returns for retirement and provide additional income throughout an investor’s working life.”
In order to stay ahead of your investing game, Solms provided three tips for youth:
Start Early
Keep in mind, the savings accumulate and the interest compounds without taxes, as long as the money is not withdrawn, so it’s wise to establish one of these retirement investment vehicles early in your working life.
Another reason to start saving early is that usually the younger you are, the less likely you are to have burdensome financial obligations: a spouse, children and mortgage, for example. That means you can allocate a small portion of your investment portfolio to higher risk investments, which may return higher yields.
Consider this. If you are say 25 and you expect to work until 65 you have 480 salary days to save. Average life expectancy is 85 which means you will have to provide 240 pay days yourself with no salary.
Diversify
Select stocks across a broad spectrum of market categories. This is best achieved in an index fund. Invest in conservative stocks with regular dividends, stocks with long-term growth potential, and a small percentage of stocks with better returns, along with higher risk potential.
“For young people it’s widely recommended that you start out by investing in Exchange Traded Funds (ETFs), setting your risk is about deciding the right asset-allocation between stocks and bonds. As a young investor, you should be setting up your portfolio to maximize the returns you will receive in the long-term,” adds Solms.
Keep Costs to a Minimum
Another reason to consider ETFs when beginning to invest is that they have low fees. Because you’ll be investing for the long-term, don’t buy and sell regularly in response to market ups and downs. This saves you commission expenses and management fees, and may prevent cash losses when the price of your stock declines.
“Investing for your future should not be a grudge purchase – you need to set goals and stick to them, speak to your financial advisor and get your portfolio on track. Investing should be simple,” concludes Solms.