Stuck at 65 plodding away at the calculator isn't anyone's dream of retirement... I'd much prefer to be hitting Spanish beaches with an iced Mojito in hand everyday, realising my dream of learning how to surf. It's only investing for retirement wisely that can offer anyone that freedom. But, how on earth do you do it?
That's the question for almost everyone who's considering planning for retirement. How, when, why, what, where?! The questions of exactly how to plan wisely for our futures aren't as easily answered as all of us hoped. That's why I'm giving away my favourite five retirement investing tips: Why, when, where, what, and how to invest for retirement.
The Favourite 5 Tips for Retirement Investing
1. Why to invest for retirement
"Retirement" is a funny word, especially in today's economy. Most people don't have a view of eventually retiring, and most of those that do are worried about it.
In my opinion, "retirement" doesn't mean sitting on your bum and doing nothing. It simply represents a time when I won't have to worry about my finances, and can live in "fairly" complete financial safety. That's why I'm investing for retirement. Not because I hate my job and want out one day, but because I want financial freedom at a later age to move as I want to in the world. While the specific reasons may change from person to person, that's the clincher to any retirement plan: You want future financial security.
2. When to invest for retirement
The earlier the better. I say this with interest in mind, because time benefits any interest rate... but if your investments are offering compound interest then this is doubly important. That's because it can take about 10 to 15 years for your compound interest to really get off the ground. When it does, though, you're well in the clear. Compound interest grows your portfolio exponentially.
You can read more about the benefits of compound interest, but I wouldn't suggest diving into investments offering any other kind of interest rate. The more important thing is deciding how long you're going to invest for. The longer you do, the larger your savings will become, especially in the final years. But to decide when exactly to cash in on your investments means calculating what kind of amount you'll need for retirement. Generally, it's advised that you should have at least 70% of your current annual income saved for retirement (per year). Obviously, the grander you want to live, the bigger this amount will need to be. Once you decide on this, though, then you can project when your investments will return this amount and you can officially retire.
3. Where to invest for retirement
Locally is always a good option, because you'll have the best understanding of your local market. Warren Buffett's advice to his fellow value investors is to always understand what you're investing in, and this goes for where too. If you understand a certain market, then you can invest more wisely and have confidence in your decisions, which ultimately helps you stay secure for long-term investments.
Of course, if you want to be more agressive in your approach, then you will want to look a bit further abroad. Emerging markets, especially, offer some great opportunities, although this isn't always the greatest approach for a retirement plan, in which you tend to want to avoid risk.
4. What to invest in for retirement
Value and deep value, is what I'm always after. To build a retirement portfolio that is large enough to last up to 30 years, you're going to need the growth potential of stocks. Yet, whatever you end up in investing in, make sure you decide based on "value". This is not a popularity contest.
So, invest in value, and invest in what you know. But you'll want to do more reading on how to value a business and how to find undervalued stocks, before building your portfolio on the growth potential of valuable stocks. Why? Because stocks also mean allowing a higher amount of risk to take hold of your portfolio. But for value investors the wonderful news is that we don't need to be scared off by fluctuating markets. We hold the opinion that a good stock might fluctuate, but in the long-term it will always rise in value. That being said, if you don't have the stomach to watch your portfolio fluctuating, then rather stick to the low risk options of bonds or cash.
But, there are also other options to consider when thinking about the "what to invest in for retirement". The type of savings account that you create to save with is important. Remember, taxes can eat away at savings, so you'll want to choose an account that minimises the tax paid on your interest earned. Something like an IRA (individual retirement account) can minimise your tax payments, and a (401)k account can do so even more.
5. How to manage your retirement investment
Deciding how to manage your retirement investment depends on the specifics of your investor's profile. What is your experience, your time devotion, your portfolio size, et cetera?
If you aren't investing through a fund manager, which I would recommend (read here why), you are going to want tools and software to make your portfolio management easier. Something to aid your strategy decisions, and to confirm your assumptions.
These tools could take the form of stock screening and stock picking software, or full service trading platforms. But, you'll want to find something that caters specifically to your needs. Not every software platform is for everyone - you need to understand your goals, and clearly see how this software will help you achieve those goals.
If you'd like to have a free test run of STRIDE's stock screening and picking tools, then sign up for the live demo with Scott Nursten below. It's a no-strings attached, no fluff offer for anyone wanting to take their portfolio to the next level.