We are never too old or too young to think about retirement. Everyone aims to have a stress-free retirement, free of financial burdens. Investing in retirement early gives you an edge, as you have more time to put away more money for your future.
However, it seems some demographics aren’t as well prepared for retirement as others. Millennials have been found to be the least interested in saving for their retirement. MarketWatch reported that 43% of millennials are without an employer-sponsored retirement plan, with the majority stating that they’re saving enough money without one. Although they are willing to save, merely saving money is not enough to cover costs to be incurred in the future.
“We should be doing everything in our power to empower more young workers to be able to do the saving that is going to be so important to their financial futures,” said Colin Seeberger, YI’s strategic campaign adviser.
However, investment requires strategic planning, especially for first-timers, to ensure you are gaining more while spending less. In this post, we will highlight mistakes you need to avoid when investing in your retirement.
Doing it on your own
Although it’s necessary to know the ins and outs of investments, especially knowing when to buy, sell, and hold onto your stocks and money, not everyone has the patience to understand all the technicalities of the process. Not everyone has the patience necessary for investments, thus seeking assistance from experts in the industry is certainly beneficial.
Do not handle your investments on your own and seek assistance from financial advisors or brokers. Ask these important questions to a financial advisor before procuring their services to fully understand if their mission is in line with your investment goals:
• How do you get paid for investments you recommend?
• What safeguards does your firm have in place to ensure that my assets are protected from fraud?
• What licenses, certifications and/or credentials do you have?
• Do you proactively send out rationale for buy/sell decisions?
• Will you be the only person working with me?
• How many new clients do you take on each year?
Having a hoarding mentality
One of the common behavioral biases that hurt investments is loss aversion, where people tend to feel the pain of loss more than the joys of gains. This reaction leads to a bigger problem called hoarding, where investors would rather hold onto their money rather than buy or sell stocks and investments to keep their portfolio running. In fear of losing more, they hoard their earnings and wait for the right time to act in the market.
Additionally, some experts suggest hoarding leads with bigger fees and interest rates that will eventually eat up all your hard-earned cash for retirement. Rather than hoarding, have a clear objective on where you see your money going and how much you should be willing to risk. It’s also important to set limits on how much you will be willing to risk to avoid continuously putting money on something that isn’t working.
Not focusing on future and long-term
Along with the process of reaching your retirement goals, there will be short-term fluctuations. Do not get overly distracted by it and work on how you can build a long-term, diversified portfolio. Checking your progress daily may affect your decision-making and confidence in investing.
There are economic changes that might take your attention away from your investment goals, such as Brexit affecting the value of the British pound and other economies. If you follow the news, FXCM reported that analysts foresee the currency to encounter more volatility as the UK government submits Article 50 and finalizes the exit process from the European Union. In fact, Reuters said that UK farmers are now holding onto cash and have started cutting their investments due to the uncertainty brought about by Brexit. This is exactly what shouldn’t happen if investors are more focused and confident in reaching their future wealth goals as it can cost them in the long run.
Long-term investments come with plenty of advantages to investors, such as:
• Paying less taxes
• Easy to correct your investing mistakes
• Avoid costly mistakes
• Passive investment is convenient
• Rate of return if boosted by stock dividends (if any)
Retiring without a plan
Retirement and investment both need clean and straight-to-the point plans and objectives. Apparently, millennials lack concrete retirement plans, as a study featured by CNBC said that young adults have unrealistic retirement goals. The article said that 15% of millennials believe that winning the lottery is a more viable retirement strategy, while 11% expect money to be “gifted” to them upon retirement. Many of them want to stick to their own saving processes, hoping it will be enough to cover their retirement costs. Wealth advisor Charles Sachs said this notion is a byproduct of millennials having lived through the Great Recession. When thinking of retirement, young adults need to understand that time is on their side. If they start early, they will be able to save and earn enough money to even retire early.
In fact, someone who starts saving at the age of 20 and retires by 66 can save as much as $2 million, while someone who starts at 25 and retires at 66 will only get about $1.3 million.
By avoiding these retirement investment blunders, you are ensuring a stress-free retirement, free from any financial problems. It’s a learning process, but you will get there eventually.