Funding Your Future: 6 Dos and Don’ts of Investing for Retirement
Photo: Towfiqu barbhuiya / Unsplash
Everyone wants to enjoy a comfortable retirement, but few people take the time to carefully plan and invest for one. Instead, they think of retirement as some far-off thing their future self can worry about. The truth is that the decisions you make today will significantly impact your financial stability in the golden years ahead.
To ensure you’re in a strong position to take charge of your retirement, keep the following six do’s and don’ts in mind.
Do: Understand tax implications
Taxes can significantly impact the amount you ultimately retire with. This makes it crucial to understand the tax implications of different retirement accounts and investment strategies. The specifics will differ depending on your country and the style of accounts you use.
If you’re an Australian, for example, you’d want to compare self-managed superannuation funds with industry funds. The Australian government also co-contributes to retirement funds for low-income earners, so it’s worth Googling “tax return calculator Australia” to see if you qualify and what you need to do to take advantage of the scheme. Meanwhile, US citizens would want to compare accounts that offer tax-free withdrawals in retirement with those that offer tax-deferred growth.
Regardless of where you are in the world, a well-informed approach to taxes can help you optimize your retirement income.
Don’t: Keep putting it off
Time is one of the most powerful tools in retirement planning. Procrastination, by contrast, is the enemy of a prosperous retirement. To ensure you end up on the right side of the equation, start early and stay consistent. Thanks to compound interest, even small contributions can accumulate into a substantial nest egg if given enough time.
Take this proactive approach with the management of your accounts too. Ignoring the performance of your investments can lead to painful missed opportunities. So, track your funds and adjust your strategy as you age to ensure you can enjoy financial security in retirement.
Do: Work on diversifying your portfolio
Spreading your investments across different asset classes (we’re talking stocks, bonds, and real estate) can help mitigate risks. Your individual investments will still experience fluctuations – that’s unavoidable. However, if your portfolio is well-diversified, you’ll reduce the impact of this volatility on your overall savings.
Don’t: Overlook fees
Though they may seem small, fees and expenses can eat into your returns over time. So, once a year or so, check over your management fees, transaction costs, and other charges. Check in with friends to see what they’re paying, and research alternative options. You may well find an investment option with lower costs, such as an index fund or exchange-traded fund (ETF). If this allows you to cut down your fees, it could lead to a substantial improvement in your long-term returns.
Do: Educate yourself on investing
Even if you’re working with a financial advisor, it’s important to educate yourself about such things as risk profiles and investment strategies. This will ensure you’re able to assess the information you’re given by your advisor, helping you tailor an investment strategy that aligns with your goals and risk tolerance.
Don’t: Blindly follow trends from influencers
Following investment fads without understanding the risks can lead to significant losses. So, resist the urge to watch YouTube investment advice. Instead, talk to trusted professionals, and stick to your strategy. Thoughtful, well-researched choices should yield better results over time.
By adhering to these dos and don’ts, you can better navigate the intricate landscape of retirement investing.
