Retirement investment plan is a long investment. It takes into consideration your long-term income, lifestyle you intend to live, and what to do to achieve your goals. Factors to consider include when you are planning to retire, where you will live, and what you will be doing.
While planning, consider the cost of living in different counties and even in the neighborhood. Add daily expenses, holiday trips, medical charges, and emergencies to see all the expenses you will be incurring when retired.
Retirement goals depend on the income expected when retiring. And it does change depending on the risk tolerance and investment horizon zone. The following six golden rules will help you create a successful retirement investment plan.
Examine and Understand the Available Investment Options
Exhaust your options and take advantage whenever necessary, such as investigating the kind of retirement benefit offered by your employer because some still offer defined benefit pension, which is a big booster. When building your portfolio, it is important to understand types of risks and their respective rewards.
Young investors prefer high-risk investment because they have time to recover for their loss in case the worst happens. They are free to invest in stocks and other high-risk investment areas, which is contrary to their older counterparts.
Older individual prefer lower risk portfolio investments. This is because they do not have time to recover their loss in case of any. They do invest in bonds or other low-risk investments.
Retirement vehicles include defined benefit plans, individual retirement account, and simple IRA (individual retirement account) used by employers with a small number of employees.
Portfolio investments include annuities, stocks, mutual funds and bonds, cash investments, and direct reinvestment plans.
Start Investing While Still Young
This is a key secret to a successful investment. This is because of three reasons, which includes more years of savings leads to more returns. Secondly, it helps you to gain experience in investment and develop expertise in the field of investments. Lastly, starting investing while still young gives you an opportunity to recover the losses that might arise. It also gives you the freedom to try out high-risk investments.
Compounding is most successful over a longer duration of time and hence a young investor can take this advantage. For example, if you start saving $100,000 at 20 years with a compound interest of 5% per annum, by the time you are retiring at 65 years you would have accumulated $898,500. Compared to a person starting to save the same amount at 40 years, by 65 years, he would have only accumulated $338,630. This does not take into consideration taxes or inflation. It is therefore evident that the longer you put your money to use, the higher the gains.
Calculate Your Net Worth
This is the difference between your assets and liabilities. And it should be always be positive to be on the safe side. Assets are cash and cash equivalents such as your properties (vehicles, your home, jewelry) and cash deposits. Liabilities are debts that you owe other people. Your net worth helps in knowing your financial strength and weakness for you to make a clear financial decision.
Keep Your Emotions in Check
When investments perform well, you may be overconfident or underestimate the risk. When investment performs badly, fear takes over and you start investing in low-risk properties. To avoid the above, be realistic and accept to lose at some point. It is also important to maintain a balanced portfolio.
Pay Attention to Fees
These may include transaction fees, expense ratios, administrative fees, and loads. Your gain possibly drastically may be eroded by these kinds of fees hence it is advisable to examine them keenly before deciding to invest. With the knowledge, you can go for other alternatives.
Seek Help Whenever You Need
Lacking knowledge on how to invest cannot be used as an excuse to avoid the investment. Ask help from professionals such as qualified investment advisor or certified public accountant.
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