Saving for retirement can often be a stressful and overwhelming endeavor. Between mortgage payments, groceries, car payments, and all the other costs that come with everyday life, having any money left over can seem like a minor miracle. If you are lucky enough to have money left over or had the foresight to put money away right away, investors are left with the difficult decision of what to actually invest in. With options ranging from 401(k)’s to ROTH IRA’s and even stocks and bonds, this process can be extremely stressful.
Prior to investing, it is of vital importance for investors to determine what their financial goals are for retirement. It is also extremely important for investors to identify their personal risk tolerance. Once investors have identified both of these items, the next step is creating an asset allocation. Asset allocation consists of dividing up your investments in a way that makes sense for you. The right asset allocation can help investors maintain confidence through economic ups and downs and even increase the potential for better returns over time (Keep in mind that neither diversification nor allocation ensures a profit or guarantees against loss).
Once investors have finalized their asset allocation, it is important to understand the implications of each of the investments. How an IRA operates is very different from how a 401(k) operates, which is different from stocks, which is different from bonds. In order to successfully invest for retirement, investors must understand what it is they are investing in and what each mean. For example, if an investor has a 401(k) but puts no money in it, it’s useless. Yes, that investor has a 401(k) but it holds no value.
Finally, to successfully invest for retirement, it is important to consonantly be reevaluating your financial goals. As investors get older and get closer to their goals and retirement, the means for achieving those goals changes. This means the asset allocation needs to change accordingly as well.
Links:
http://www.fool.com/retirement/retirement02.htm
http://money.cnn.com/retirement/guide/basics_basics.moneymag/index3.htm
http://personal.fidelity.com/planning/retirement/content/how_to_invest.shtml
I like how this article highlights that just having a 401(k) does not make you ready for retirement. However, if you can start off planning for your retirement when you are young, the contributions do not have to be that large. If you were to start when you are 21, even putting away 100 will greatly help you in the future and take a lot of stress of having to quickly come up with more cash for your retirement. I have a 401k now with a few thousand dollars in it, and even though I am barely contributing anything to it anymore, I figure it was better to get an early start opposed to having nothing at all.
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