Life seems so long when you’re young, And then one day you actually start thinking about retirement — and it’s not all that far off. How did you get there? Seems impossible. And yet there you are. Worried you haven’t done enough to prepare.
Although early on you somehow assume all this will just happen, you want to have enough money set aside so you actually can retire. Even if “retire” for you might include doing things you truly love that also earns money. And for most of us that takes some solid planning early on.
But thinking about retirement is BORING!
It’s also scary And that’s why many of us avoid doing it for so long. And for some of you, even this much thought is just too much. I get that. And I understand.
But for anyone willing to dig in a little further, there are things you can start doing now. Whatever your age. Although the younger the better. But please don’t let “it’s too late for me” be the reason you stop thinking about retirement!
More boring stuff
I want to talk about compounding for a bit. And also portfolio diversity. These are key concepts — with the latter one really showing its importance when markets start crashing.
I’ll keep the numbers part simple for anyone with an aversion to math. Basically the longer you have money invested that earns interest (like savings, CDs, government bonds) there is a wonderful bonus you get. The interest itself earns interest and the original amount (the principal) keeps earning also – and growing even more.
Example: $1,000 invested today at 3% will be worth about $1,800 in 20 years if you can average 3%. That’s almost double your money. And the more years you have it invested the more you’ll have when you need it. Plus all the rest you keep adding.
I mentioned government bonds (also long-term CDs) because they’re safe and you can lock in a decent interest rate, especially at this time since rates do vary. But I try to aim for about 3% average over time since it’s not greedy and fairly doable.
But because of inflation, you need to have other types of investments in your nest egg basket…
Here’s where you help protect yourself in case any of the types of investments are not doing well when you need to start thinking about retirement. Not only does this help you maximize your portfolio (total basket of investments) in a safe way, but you also leave yourself a healthy pot of money you can tap into at that time.
So when putting together a varied (diverse) basket of investment types why include stocks at all if you can lose so much at any one time? You don’t have to. I have a friend who keeps all of his 401K money in treasury (government) bonds. While everyone else is sweating it now, he feels cool and calm.
But over time, stocks and other financial market investments have historically outperformed savings accounts, CDs, and plain old government bonds. And they also help you make up for things that cost more over time.
The catch is — you need enough of any one or more types of investments that can ride out the rough times. So for some, less (potential earnings) is more (security).
Thinking about your retirement?
If I haven’t lost you up to this point, I’d like to offer some more things to think about. And some tips. Whenever you ‘re ready to dig in. And if you have questions or thoughts to add, feel free!