If you want the best retirement, you need to start right now. You need to start thinking about retirement regardless of your age or your stage in life.
People who are employed and whose employers offer a 401k retirement plan need to take advantage of that plan. Invest up to the match. Next, open a ROTH IRA or an IRA if you do not qualify for a ROTH. (For more information on ROTH IRA’s read these posts: IRA or ROTH IRA and ROTH IRA.
Legally, I am unable, to recommend the specific investments you should make, e.g. what stock or mutual fund or other specific financial instrument in which you should invest. This is because I am not a certified financial planner or a stockbroker, etc. However, as a certified financial coach, I can provide you with information to help you make informed decisions.
- In order for you to have the best retirement, you need to be diversified in your investments. To be diversified means that you do not put all your money in one investment. As the old saying goes, “Don’t put all your eggs in one basket.” If that basket falls, you lose all or most of your eggs. By the same token, if you put all your money in one stock or one fund, if that company goes under or that fund folds, you just lost all your money. Therefore, spread your money over different financial instruments. Put money in separate mutual funds, separate ETFs, ROTH IRA, IRA, and your employer matched 401(k).
- Avoid investing in stuff you know nothing about. For example, if your best bud or a family member or anyone else says they have a surefire, no lose investment or deal in which you are clueless, take a pass. Do not put money in “surefire” things. Most of the time, the only thing that will catch fire is your money because it will be gone.
- Remember that every investment carries a risk. Nothing is guaranteed. If you buy stocks, bonds, mutual funds, or other financial instruments, there is no guarantee that your money will grow or that you won’t lose it all. Invest to the level of risk you are willing to take. Usually, the higher the rate of return, the higher the risk. Vice versa, the lower the risk, the lower the returns. Bonds are less risky than stocks, but there rate of returns are generally lower. When you are young, you generally have a higher risk tolerance because you have a longer timeframe wherein you can recoup your money. As you get older, your risk tolerance is lower because you are closer to retirement.
- You have a better chance of earning more by investing in mutual funds or ETF’s than in individual stocks and bonds. This is because these funds are investing in a variety of stocks. Whereas, if you go and buy stock in one company, you are stuck with what happens to that one stock. However, in a mutual fund or ETF you are investing in multiple companies. If one goes down, chances are the others will be going up or staying the same. This limits your risk.
- Implement dollar cost averaging investing. When you invest this way, you are investing the same amount every month. You don’t care whether it is a Bull Market or a Bear Market. You are taking the same amount of money and putting it into your fund. One month you might be able to buy more and other months you might buy less because the price is higher. Plus, you will avoid panic selling or maniac buying.
- Read up/research the funds in which you want to invest. If a person on TV is touting a particular stock, do some reading on it. If you agree that it might be something you want to invest in, then find a mutual fund or ETF that has that stock. Look at the other stocks held within that fund. How has the fund preformed over the past ten years? Is it a new fund? Is it a load or no load fund? Are you comfortable with the companies in the fund? If you are a Christian and one of the funds has an awesome rate of return, but one of the companies is involved in embryo stem cell research, is this a company you want? Do companies in that fund reflect your values?
- Just as you avoid surefire investments, avoid get reach quick schemes. These are a waste of money. The only person getting rich here is the one that came up with the scheme. Remember, if it looks too good to be true, it probably is too good to be true. Watch a few episodes of American Greed.
- Finally, always remember to live below your means, give generously, and invest. Nothing in this world is ours. It all belongs to God our Father.