There is no one-size-fits-all perfect retirement investment strategy. Although the destination of a stable, comfortable and worry-free retirement is universal, what that retirement ideal dream looks like is unique to each person. The path to reach that goal is equally diverse and will vary based on the size of your household, your expenses and lifestyle and your income.
The inherent diversity in retirement investment strategies does not mean there are no universal best practices. There are a variety of habits you can embrace to ease your journey along the retirement savings path and increase your chance of comfortably funding the retirement you seek.
Start Investing Early
One of the most important habits for building long-term wealth is starting early. The power of compound interest – where the returns on your investment start earning their own returns – can be truly magical over the long term. The earlier you start investing, the more time your money has to grow.
Many people who have just graduated from university and are entering the workforce full time for the first time don’t have the luxury of setting aside a significant portion of their income for retirement savings. This is especially true for people with student debt, a high cost of living and entry-level income. There are several things you can do to catch up on retirement savings if you weren’t able to start saving for retirement as early as you may have wanted.
These strategies may include:
- Make full use of employer match and maximize your 401(k) or IRA contributions as soon as you’re able
- Pay off your high-interest debt first to free up more money for your retirement savings
- Consider delaying retirement and maximizing Social Security delayed retirement credits
- Downsize your lifestyle like your home or discretionary spending so you have more money to set aside for retirement each month
- Work part time in retirement to bolster supplemental income
Regularly Contribute to Your Investments
Consistency is key to effective retirement savings strategies. Regular contributions, even small ones (especially in your early working years), can add up over time. Workers who have the option should seriously consider using automatic 401(k) contributions if they aren’t doing so already. Even people who don’t have an employer-sponsored retirement savings plan can automate retirement savings by setting up automatic monthly transfers from your bank account to your investment portfolio.
These types of regular contributions are essentially a form of “dollar-cost averaging” investments. Investors, especially people who don’t do it professionally or don’t want to spend an inordinate amount of their free time studying the market, may be terrified of buying at the “wrong” time. By regularly making investments of a fixed amount of money on a consistent schedule, like each pay period, you smooth the impact of price fluctuations and market volatility.
Diversify Your Portfolio
Diversifying is important for both managing risk and promoting consistent growth. Valuation of different sectors, regions and asset classes ebbs and flows. Some investment strategies are inherently risky but offer significant growth potential while others are extraordinarily low risk but offer minimal growth. A diversified portfolio may feature both at different concentrations to reflect where you’re at in your career or how close you are to retirement. As a rule of thumb, your risk tolerance decreases as you get closer to retirement, but you might want to pursue higher returns and more risk if you’re playing catchup in your later working years.
You may also want to ensure your investments align with your worldview. For example, you may or may not want to keep your investments in funds that adhere to ESG (environmental, social and governance) principles. Some investors are willing to sacrifice growth or will tolerate more risk to invest in companies or industries that align with their personal beliefs or preferences.
Diversification and your risk tolerance are very personal decisions and there’s no fool-proof how-to guide. The assistance of an investment manager or retirement planner who knows your risk tolerances, investment preferences and retirement goals can help you make informed decisions about your portfolio diversification.
Stick to a Plan
Successful investors create a plan and stick to it, regardless of market conditions. This means resisting the urge to react to short-term market fluctuations. This is a particularly important habit to adhere to when market conditions get rocky, but it can be hard to do when you’re in retirement and seeing your investments losing value at a fast rate. One of the benefits of working with an investment manager or retirement planner is emotional support. They can give you their honest, professional opinion on your situation so you don’t make rash decisions fueled by panic.
Review and Adjust as Needed
While sticking to a plan is important, so is recognizing when adjustments need to be made. Life events such as marriage, having children or nearing retirement can necessitate changes to your investment strategy. Avoid making knee-jerk decisions based on anxiety, but don’t necessarily be so rigid in your strategy that you refuse to recalibrate on occasion.
Develop Good Habits with Fullerton Financial Planning
If you’re like many Phoenix retirement savers, you worry about the state of the housing market, interest rates, inflation and your investment portfolio. It’s easy to lose faith and make rash decisions in times of volatility and uncertainty. One of the benefits of having an investment professional in your corner is always having access to a calm, stable and informed opinion.
