Retirement seems so far off in your 20s that you hardly ever think about it. But, anyone nearing retirement age will tell you that time flies by, and building a sizeable nest egg will only get harder as years go by.
If you don't have a retirement plan in place, this is the best time to start. This article looks into how to invest for retirement, why a long-term approach is ideal, and what options are available.
Short-term investments have their benefits, but they assume more risks with the hope of greater rewards in a short period of time. You don’t want to accept such risks when investing for your retirement.
Long-term investments are ideal because of:
The longer you have, the more returns you’ll realise from an investment. Most investment options need time to grow and mature. For example, a stock or mutual fund peaks after seven years. Therefore, a 20-year investment in that fund should yield excellent returns.
This is the key selling point of all long-term investments. Compound interest results in an initial steady to a final exponential growth of your investment fund over time. Therefore, the longer you invest, the more you’ll realise.
Having more time to invest gives you a chance to make amends for poor investment choices. If one of your investment tools doesn’t perform as expected, you’ll have the experience and knowledge to make better investment decisions. Additionally, fluctuations in the market may seem scary in the short term, but they tend to smooth out over time, exhibiting an upward growth trend despite the tiny fluctuations.
Let us look at how to invest wisely for retirement with the right tools.
Investing in individual company stocks and shares is easy, as there are plenty of apps and advisers to help you. This way, you’ll capitalise on the excellent performance of those companies.
Investing in funds is a more professional approach where fund managers oversee your investment. Additionally, it is less risky than investing directly in specific companies.
Governments issue bonds to the public as a way to raise funds, with guaranteed pay and interest. Therefore, these bonds are among the most secure and reliable investment tools.
When thinking of how to invest with your retirement in mind, remember that investments always carry some degree of risk. Therefore, take precautions to protect your investment as much as possible. For example, ensure you diversify your investment portfolio to spread the risk. Additionally, consult professional financial planners for guidance on investing.
Image Source: Unsplash