A recent survey of retirees found that the top complaint they have is not having enough money.
However, you can avoid this unfortunate situation by planning ahead and starting to invest as early as possible.
It’s never too late to start investing in your future, so here are 10 steps you can take to protect yourself from financial insecurity.
1. Start saving for retirement as early as possible
By starting to invest in your financial future at an earlier age, you will have more time to build up a substantial nest egg.
The longer you save money, the better off you will be during your retirement years.
For this reason, it is highly recommended that you make long-term investments when you begin your retirement savings.
As an example, if you start investing $2,000 per year at 25 years old and earn 6% interest each year, then by the time you are 65 years old you will have over $1 million in your nest egg.
2. Consolidate your retirement accounts to simplify your finances
Allocating all of your savings to one retirement account is the best way to ensure that you are adequately funding your future.
If you have money saved up in multiple places, then it will be much more difficult to meet your goals.
By rolling over all of your company-sponsored plans into a traditional IRA, it will be easier to manage your accounts.
You can even save more money for retirement by automatically depositing a portion of each paycheck into your new account.
3. Don’t underestimate the power of compound interest
By starting early and staying invested, you allow compound interest to work in your favor over the long run. In other words, the interest that you earn on your investments will accumulate over time.
For example, if you invest $100 per month into an account with 7% interest, then after 40 years you’ll have over $200,000.
4. Keep your investment expenses low to maximize returns
Investment costs such as commissions and management fees can seriously decrease your returns.
As such, it is important that you keep these costs to a minimum by selecting low-cost index funds when making long-term investments.
By doing so, you will be able to keep more of your money in the market and let compound interest work for you over time.
5. Don’t stop saving during recessions
During a recession, many people are tempted to stay on the sidelines and wait for things to improve before they invest again.
However, if you look at any of the great market downturns through history, you will see that those who stayed invested actually came out much better than those who got scared and sold at the bottom of the market.
Stick to your long-term investment plan, even in tough economic times, to protect yourself from volatility in the stock market.
6. Don’t invest money you’ll need soon
This is a mistake that many ordinary people make when saving for retirement.
If you withdraw these funds early, then not only will you face penalties and taxes, but you will also be back to square one in terms of funding your retirement.
It’s best to save short-term money in a separate account so that you can access it if necessary without sacrificing your long-term financial security.
7. Save more as you get older
Typically, people begin to increase the amount that they save for retirement once they reach their 30s and 40s.
This is a great habit since it builds on top of your previous investments and allows compound interest to work even harder for you.
With each additional investment, you’ll see your retirement savings grow exponentially over time.
8. Max out your employer match
Many companies will match a portion of what you invest in their retirement plan up to a certain limit.
For example, if your company offers a 50% match on the first 6% that you contribute towards your 401k, then by contributing 12% of your salary ($1,200) you will receive $600 from your employer.
This is an immediate 50% return on investment so it makes sense to contribute as much as possible in order to take full advantage of the match.
9. Maximize your tax-deferred savings with a traditional IRA
If you max out contributions to your 401k, then consider adding to your traditional IRA. Contributions are tax deductible so this is a great way to reduce your taxable income in any given year.
Withdrawals after age 59.5 can be made without penalty, making this an excellent option for people who want to retire early (or simply don’t like working anymore).
10. Pick up some free money from your company’s HR department
Many companies offer all sorts of wellness programs, including fitness reimbursement and discounted gym memberships.
Others provide tuition aid so you can go back to school for an advanced degree or professional certification, which can lead to increased earning power over time.
Finally, some companies have programs that match charitable donations which can help you save money on your taxes while also helping a good cause.
11. Avoid making big changes to your retirement strategy mid-stream
It is very common for people to change their investment plan when the market dips or they are having trouble saving enough money each month.
However, if you’re already in the habit of making regular investments and saving a certain percentage of your income for retirement, then it makes sense to remain consistent with that plan.
Making changes can result in dramatically different returns over time and could even put you on track for financial disaster later in life.
12. Don’t invest in whatever you see advertised
Do your own research and pick investments that sound legitimate, not those that are touted in television commercials.
There is a lot of money to be made by selling investments, much more than can be earned by investing in them directly.
For example, many celebrities earn millions of dollars a year as spokespeople for various products and services.
They are often paid obscene amounts of money simply because their name or face helps to sell a product, regardless of whether it is actually good for the consumer.
13. Maximize your contributions if you can afford to do so
Contribute as much as possible that you can afford to your 401k, even if that means putting off buying a new television or other big-ticket item for another month or two.
Just because you can’t afford something now doesn’t mean that you shouldn’t be setting money aside for it anyway.
For example, let’s say that you can choose between buying a new flat-screen TV for $800 now or putting that same amount into your IRA.
If you put that money into a traditional IRA and only earn a return of 5%, then you’ll have an extra $3,723 at retirement. However, if you wait until the year after to buy the TV and invest the full $800, you could have an extra $5,522 by the time you retire.
14. Use a Roth IRA for tax-free gains
The best way to build a nest egg that will last throughout your lifetime is to invest in a Roth IRA because withdrawals are not taxed as long as certain conditions are met.
For example, if you are over 59.5 years of age and have held your Roth IRA for at least 5 years, then you can withdraw up to $10,000 per year without paying any taxes or penalties (you do not need to buy a first home or use the money for higher education).
This is one of the best benefits of a Roth IRA and should be part of your retirement plan if at all possible.
15. Maximize your contribution if you can afford to do so
Contribute as much as possible that you can afford to your 401k, even if that means putting off buying a new television or other big-ticket item for another month or two.
Just because you can’t afford something now doesn’t mean that you shouldn’t be setting money aside for it anyway.
For example, let’s say that you can choose between buying a new flat-screen TV for $800 now or putting that same amount into your IRA.
If you put that money into a traditional IRA and only earn a return of 5%, then you’ll have an extra $3,723 at retirement.
However, if you wait until the year after to buy the TV and invest the full $800, you could have an extra $5,522 by the time you retire.
16. Don’t try to time the market
Do not attempt to guess when the best time of year is to buy or sell stocks.
It can be very tempting at times, especially if you see dramatic fluctuations in the stock market on a daily basis.
However, all of your hard work could come crashing down if you try this and happen to pick a bad time to make a move.
For example, let’s say that you decide to sell all of your stock at the beginning of a month because of some bad news about one of your investments and then that same investment rebounds by the end of the month.
If you had just held on for another week or two, then you would have doubled your money instead of losing a good portion of it.
17. Double-check before investing
Before you start to invest, have a friend or family member look over your portfolio.
Even if they’re not an expert, someone else will be able to catch any mistakes that you may have made along the way and help you to correct them before it’s too late.
For example, let’s say that your portfolio is worth -$4,000 because you accidentally bought a stock for twice the price that it should have been when you were in a rush.
If someone else had been able to catch this mistake and help you to correct it, then you would have saved yourself a lot of money and time.
18. Always invest regularly
If you want to make the most out of your investments, then you should always set up automatic monthly contributions from your savings or checking account and buy more shares every month (or quarter).
For example, let’s say that you were able to buy $100 worth of stock every month and it earned you a 5% rate of return.
After 10 years, your total investment would be worth $17,049 – much more than if you were buying the same amount only once a year or whenever you had money leftover.
19. Don’t sell during crashes
Whenever there is a huge stock market crash like we saw in 2008, do not try to “buy low and sell high”.
If you start selling when the market crashes, then you will most likely be selling at an all-time low and miss out on huge gains when it rebounds.
For example, let’s say that stocks were at a pre-crash price of $100,000 and you sold your stocks during a market crash.
After the rebound from the crash, that same investment was worth $200,000.
If you had simply held on to those investments throughout the entire year-long decline and rebound, then you would have made an extra $100,000.
20. Avoid companies that you find unethical or distasteful
Whenever possible, avoid investing in companies that you find to be unethical or distasteful.
For example, let’s say that your portfolio was made up of 50% pharmaceuticals and oil companies because their dividends were very high.
If you later found out that the pharmaceutical companies were withholding important information about an expensive drug or oil companies were destroying habitats, then you would lose sleep at night thinking about how much money you’re making off of their unethical practices.
21. Don’t be afraid to diversify
When you start investing in individual stocks, it makes sense to invest in companies that you know and understand.
However, once your portfolio starts to grow in value, it makes more sense to diversify so that you are not putting all of your eggs in one basket.
For example, let’s say that you have an investment portfolio worth $40,000 with five different stocks in it.
If one of those stocks ends up taking a drastic downturn, then you won’t lose all your money.
However, if your portfolio was worth $40,000 and just had one stock with that same value in it, then you would certainly be losing sleep at night worrying about how to recover the loss after the stock took a big hit.
22. Stocks and bonds are not the same
Don’t assume that stocks and bonds are the same thing or go hand in hand with each other.
Having a little bit of both is perfectly fine, but trying to put all of your investments into one category (either stock or bond) will end up hurting you in the long run.
For example, let’s say that you have a portfolio worth $40,000 and all of it is in stocks when it should be about 90% in stocks and 10% in bonds.
After a year-long decline in the stock market, your investment would be worth -$4,000 because all of your money was in one category.
However, had you diversified with 90% stocks and 10% bonds, then you would only be down by $4,000 instead of $40,000.
23. Reinvest your dividends
If you are an investor in a company that pays out dividends, then it makes sense to reinvest those dividends instead of taking the dividend payout all at once.
For example, let’s say that you were an investor in Johnson & Johnson and they paid out $1 per share for a total payout of $100.
Instead of cashing out your dividends right away, just reinvest them into more shares so that you can earn dividends on your dividends.
For example, if you reinvest $100 into more shares then that $100 will earn $1 in dividends after a year.
Those $100 in dividends would now earn another $1 in dividend money for the next year and so forth.
If you were to take the full payout of $100 right away, then you would only get $100 and miss out on the potential of earning $1 in dividends for each share that you own.
24. Buy low and sell high
Always remember to buy low and sell high when purchasing individual stocks. For example, if a stock is at an all-time high, wait until it has a significant drop and then buy in at a much cheaper price.
For example, let’s say that you believe that Apple has been undervalued for a long time and it is currently trading at $500 per share. In this case, you should wait until the stock drops down to $450 or even lower before investing any money into it.
This will allow you to buy more shares for the same dollar amount.
However, if you bought at $500 and then the stock dropped down to $450, then your money could have been used elsewhere where it could have earned potential dividends instead of just sitting in Apple.
25. Don’t be afraid of cash
Having a little bit of money in cash is not the end of the world. Especially if you are trying to grow your investment portfolio quickly, having some money in cash can help it grow even faster because you will have capital available to make additional investments.
For example, let’s say that your investment portfolio was worth $20,000 and all of it was tied up in stocks. In this case, you would have a hard time growing that investment portfolio quickly because there is no money left to make any additional investments.
However, if your portfolio was worth $20,000 and half of it was in cash with the other half split evenly between two different stocks, then you will have more money available to purchases shares in an up-and-coming company before it skyrockets.
Conclusion
In conclusion, if you follow these tip you can turn your nest egg into many multiples over the course of 35-40 years.
These tips do take some time to implement and might require a little bit of research on your part.
However, if you are willing to put in the time needed for this project, then you will be rewarded with an exceptional return on investment!