When it comes to investing for retirement, most people want an easy, but effective, strategy. You don’t want to spend hours each week researching stocks, tracking your portfolio and constantly buying and selling. You want a solution that is simple, that performs well and that can mostly be left alone to grow until you are ready for retirement.
If you want to start investing for retirement, the first step is to select one or more retirement vehicles, or specialized retirement accounts within which your money will grow. The most common retirement vehicles are 401(k)s, Individual Retirement Accounts (IRAs) and Roth IRAs.
Once you have selected the right retirement vehicle, the real work begins. You will need to select the portfolio investments that can help you meet your financial goals. This is the step that most investors fear. But don’t worry; we have a few tips to help you set up a low-maintenance portfolio that will make money while you go on with your life.
Invest in Funds That Mimic the Market
Every investor dreams they will pick all the right stocks, earn returns that are greater than the market average, and retire early and wealthy. While some people do, in fact, beat the market in the short-term with a series of high-risk stocks, this does not happen for the average investor.
The easiest way to build wealth for retirement is to focus on trying to match the market. Over long periods of time, the market will always grow; historically, the stock market averages about a 7 percent annual return.
Consider: Exchange-traded funds (ETFs) for a simple, flexible investment option. Most ETFs track indexes and then try to match them as closely and cheaply as possible. Unlike most mutual funds, ETFs trade on exchanges, which means you can buy and sell ETFs anytime the market is open. Investors like using ETFs versus mutual funds because fees are low and, most of the time, you don’t pay taxes until you sell and efile your return for the year.
Diversify Your Portfolio
As the old adage goes, “Don’t put all your (nest) eggs in one basket.” A good portfolio usually includes at least a few different types of investments. At the very least, you’ll want a mix of stocks and bonds.
But don’t go overboard trying to invest in as many options as you can. In his article in Forbes, investment manager Kenneth G. Winans recommends keeping your portfolio as low-maintenance as possible by not holding too many investments. Fewer investments, he says, ensures that you will have an easier time keeping track of it all.
Consider: Mutual funds, which spread out your investment (and therefore your risk) among a large number of stocks in a variety of sectors and industries. The inherent diversification of mutual funds balances any significant losses in one investment with gains in another. Mutual funds also come with a fund manager who will do all the researching and trading for you.
Buy and Hold
If you are saving for retirement, you should be investing in companies that have staying power, not wagering your life savings on trendy, high-risk companies that could be out of business by the end of the year. Choose “set it and forget it” investments that can be purchased and then left to grow until retirement.
Consider: Stocks in long-term businesses. James K. Glassman, author of “Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence,” suggests purchasing stocks in solid, long-term companies like Boeing, the biggest aerospace company in the world. Also think about investing in companies that have been around forever, such as Cisco, General Mills and Coca-Cola.
Image credit: http://401kcalculator.org