Maybe you’ve been sleeping under a rock for the past year and missed all the talk about Social Security. If so, here’s the bad news. Social Security is in trouble and so far, no one has come up with a very palatable solution. We may finally decide to increase the age at which you can begin collecting Social Security to 67 or even 68 or we may begin means testing – a fancy way of saying that if you have other retirement income, your Social Security benefits could be reduced.
However, the biggest thing that comes through all of these conversations is that you really can’t count on Social Security the way your parents may have and you need to be investing for your retirement. Given this, here are five tips that can help you with your retirement investing.
Save first, then invest
Before you start investing, save as much as you can. You can be a very savvy investor but it won’t mean much if you’re not saving diligently. It’s simple math. The more you save, the more you will have to invest. You need to have a decent amount of money in order to invest and realize any real returns. For that matter, if you’re doing a decent job in your investing, increasing the amount of money you save is likely to deliver better results than if you spend all your time trying to tweak your investment strategy.
Don’t obsess about getting better than “average” results
If you can get the market average or something close to it, you can accumulate a lot of money. As an example of this, let’s say you had invested $10,000 in the Vanguard 500 Index fund 20 years ago. You would have more than $50,000 today. In case you’re not counting, that’s a return of 8.4% annualized.
Check those emotions
Markets are on a roll right now. Don’t be overconfident and underestimate risk. If you’re old enough to remember the go-go 1990s, you remember what happened to people who plowed a lot of money into dot com and tech stocks only to regret what they had done. Rather than chasing hot stocks, it’s better to invest for the long term with a mix of bonds and stocks that would make sense, given your goals, age and tolerance for risk.
Watch your costs
It’s easy to invest in stocks or mutual funds that are posting the best returns. Unfortunately, returns can be very volatile. You can pick a fund that’s leading the pack this year only to find it lagging behind the next. In comparison, expenses are much more predictable. Funds that are more expensive than their peers will probably stay that way. Consider the fact that each dollar that you spend on expenses comes out of your raw returns and higher expenses will be a drag on a fund’s performance. While it’s not impossible for a fund with high fees to out perform its lower costing peers, it’s just much less likely.
Don’t be afraid to get help
You can probably manage your own investments if you’re willing to spend the time required to learn some fundamentals and then just exercise common sense. However, if you feel you’re not up to this for any reason or you just want some advice and counsel before going out on your own, you can get help. You don’t want to be one of those people who drive around for hours because you’re not willing to ask for directions. The good news is that there are a lot of options if you feel you need help. This can range from having an ongoing advisor to hiring somebody on an hourly basis. Do look before you leap – that is be sure to vet the advisor and ask a lot of questions. This is because if you’re not careful you could end up getting a glorified sales pitch rather than true information.