Is there a magic trick to investing to ensure that you can enjoy a comfortable retirement? It can be tempting to find an extraordinary quick-fix method as opposed to saving conventionally and it has the potential to cause irrecoverable consequences. When it comes to saving for retirement, time and commitment can be magical assets.
Here are five investment principles that can offer you the chance to experience the ‘magic’ first-hand.
Start with a plan
The adage ‘fail to plan, plan to fail’ may be appropriate in this context. It’s best to set a realistic goal. Independent financial advisers (IFAs)should explain that you should be aiming to save 17 times your final annual pre-retirement salary by the time you retire.
Earn returns that are higher than inflation
Should you want to earn real returns, taking some risk may be needed: invest in funds that are likely to have an undefined outcome in the short term. Adverse periods can be expected, but the key is to try not let this worry you. If you are taking a long-term investment approach, returns should smooth out over three to five-year time horizons.
However, it’s important that your returns are meeting the inflation rate (at the very least). If you feel that your investments aren’t providing that level of return, it may be time to consultwith an IFA. He/she can offer a holistic perspective of your financial situation and make recommendations that can enhance your investment growth potential.
Avoid switching
Irrational emotional thinking has the propensity to overwhelm us during periods of market uncertainty, causing unnecessary action such as switching. It can be unnerving to not act at all during a market downturn. You may make the decision to switch (i.e. selling out of one investment to buy another that is showing better performance). However, there is a good chance that this may destroy value, causing you to lock in losses.
Diversify – in a meaningful way
Another investment management pitfall that could derail your goal to saving enough for retirement is not diversifying your portfolio. Rather than putting all your eggs in one basket, it’s worthwhile speaking to an IFA who can look at your current investment portfolio in conjunction with your goal and suggest a variety of other options to complement your current investments. The idea is generally for you to invest in different asset classes.
Start as soon as you can
The ‘I’m still young, I shouldn’t have to start thinking about retirement’ mentality can be a massive pitfall. It’s recommended that you start saving within the first 10 years of employment. An IFA can show you a variety of graphs detailing the significant benefits of starting to save as early as possible. One of the primary benefits of this approach may be the opportunity to reap the full rewards of compound interest – another term that an IFA can explain and illustrate for you.
Through consulting financial experts and making informed choices, you can have peace of mind that you can retire happily.