One of the major reasons for people to invest is to save money to fund a comfortable retirement. That is why it is important to think of a successful retirement planning strategy as early as possible, finding a sensible balance between investment return and potential risk. In this article, we cover a few suggestions that might help you to make the right decisions with your retirement investments.
Do you think you are saving enough for retirement? Don’t you worry if your answer to this question is “no” – you are not alone. Nowadays, saving for retirement is a major challenge for many people as sometimes we spend more time and energy avoiding our finances than is necessary. However, we have only one life to live and only one retirement to enjoy, so make sure you take the smart decisions about how to invest in it.
It is never too early to think about your future
Think about it: you have worked so hard your whole life not to be in a need to scrimp and save once you are finally retired. It's never too early to think about retirement investments. In fact, the earlier you start, the more time your investments will have to grow.
The best retirement investments are the regular ones. They do not have to necessarily be complicated, as many people think. Consistency is what makes a difference. Always make sure to do your research and arm yourself with as much knowledge as possible before making any long-term decisions. Invest only when you are ready, both mentally and financially, and never throw your hard-earned cash at something you do not understand.
As time goes on, and society experiences more political turbulence, global economic uncertainty, market volatility and climate disasters, people have become more concerned about what the future holds. It is in human nature to strive for stability and consistency. Thus, to get yourself prepared for what is coming next, you should definitely consider retirement investments.
If you succeed at reaching this long-term goal, you will ensure yourself a comfortable lifestyle free of money concerns, with sufficient funds to cover all your needs and wants in the future. It is never too late to start: whether you are edging closer to retirement or just starting a career, you can always come up with a plan that helps you to accumulate as much capital as needed to enjoy your retirement years later.
So what are the top retirement investments to consider?
If you are not new to the world of investments, then you may probably know that there are hundreds, if not thousands, of various investment tools available today. The range of financial vehicles is wide, ranging from stocks and bonds to mutual funds to real estate investment trusts.
Stocks are among the most popular investments people typically look towards today. Their advantages include liquidity, transparency and regulatory framework. Stocks are usually traded through brokers, who charge commissions for their services. Common stocks owners try to benefit from a combination of dividends and appreciation.
However, it may be rather hard to predict the future value of an individual company’s stock as there are many factors that can affect the outcome both negatively and positively. Therefore, unless you are an experienced investor who is ready to devote the majority of your time to evaluation and analysis, investing in individual stocks may not be your cup of tea.
Bonds are another well-known investment means. As a bond represents a loan to a company, a bank or a government, you can benefit from the interest paid by the borrower. It is usually paid on a semi-annual basis until repaying your investment in full by the time of bond maturity. The interest rate is determined at the time of issuance, remaining unaltered throughout the life of a bond.
One of the main advantages of bonds is that their return is fixed while repayment of the principal is definite if held until maturity. This certainty gives it a superiority over stock investments, as the latter’s future value can not be estimated. Additionally, bonds have quality ratings, giving you a rough idea of the financial stability and strength of the bond’s issuer.
Another common way to generate retirement income is to build a portfolio of stock and bond funds, which is designed to achieve a respectable long-term rate of return.
Mutual funds are one example. These are known to be professionally managed portfolios made up of various securities, including equities, bonds and money market instruments. Each fund is created to perform a particular investment goal, such as income, growth, value and every possible variation within these categories. Mutual funds are usually registered and regulated by the governing institutions like the US Securities and Exchange Commission.
Another investment that has been gaining popularity among retirees for the past couple of years is an exchange-traded fund. Today, many decide to choose exchange-traded funds (ETFs) over traditional mutual funds as they offer a simpler process of trading units, higher tax efficiency in taxable accounts, as well as lower management commissions and other fees.
ETFs can be described as portfolios of assets intended to track the movement of various financial instruments, including national and international stock indices, currencies and commodities. Like stocks, you can buy ETFs through any broker.
You can also consider investing in energy master limited partnerships (MLPs) and real estate investment trusts (REITs). These are increasingly popular among retirees because of their high cash distributions when compared to corporate dividends. There are different categories of energy MLPs, which are involved in various oil and gas-related activities, such as the exploration, development, production, storage, transportation and distribution. REITs can also differ: some of them own real estate mortgages while others own property directly, managing the assets and collecting rents. Just like bonds and stocks, units of MLPs and REITs are traded on the exchanges. Investors can profit from annual distributions and appreciation in the value of the underlying assets. As part of a diversified portfolio, these can also be a good retirement investment choice.
If you are not interested in separate investments, you may want to keep an eye on retirement income funds. These are designed to automatically allocate your capital across a diversified portfolio of bonds and stocks, usually by holding a number of other mutual funds. The investments are actively managed in order to generate monthly income, which is then distributed to investors. Four world-renowned fund companies, including Fidelity, Schwab, Vanguard and John Hancock, have come up with their version of a retirement income fund. These funds are constructed to provide an all-in-one investment management solution. Investing in a retirement income fund, you remain in control of your capital and can access your money at any time.
Investing in various financial instruments allows you to participate in the financial markets, providing the potential for long-term growth. Some of them offer professional management, diversification, liquidity and even hedge against torrid economic times. However, there is no single investment or strategy that can guarantee you financial success. Each of the options has some benefits to offer and disadvantages to consider. These all can be potentially effective, depending on your income goals, risk tolerance and ability to manage investments. A well-defined investing plan, tailored to your personal objectives and an overall financial situation, will help you to stay on top of your retirement income.
Don’t forget to take advantage of every opportunity
While capital market investments are one of the most popular ways to make it to a financially serene retirement, it is still important to take a multidimensional approach. If your workplace offers, make sure to participate in your employer-sponsored retirement plan, 401(k) plan or 403(k) plan. Depending on the country you live in, you can also open something like an Individual Retirement Account (IRA), so you can generate even more income on a tax-free or tax-deferred basis. Consider all the options provided by your employer, insurance companies, local financial institutions or government and pick the ones that match your personal preferences the best.
The money you invest for your retirement should not be used for anything else but retirement income. Keep in mind that the longer your money stays invested, the more time it has to grow.
It is never too late to take care of your future. So, are you planning to become more financially responsible and find your best long-term retirement investments today?