What You Need to Know about Investing for Retirement ...
Saving money is important for both short-term and long-term financial goals. However, when it comes to retirement, savings alone probably isn’t enough. You’ll get far more return on investment through long-term investments. The sooner you can start, the better.
Unfortunately, social security probably isn’t enough to meet your standard of living needs later in life. That’s why adding investments to your retirement strategy is essential. Take a look below at some of the basics you need to know about investing for retirement.
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Saving Vs. Investing
There is definitely a difference in savings versus investing. Savings involves simply accumulating money while investing leads to making more money.
Savings accounts usually have a relatively low interest rate, meaning they don’t lead to much growth. In addition, they are easily accessible and often meant for short-term goals.
Investing, on the other hand, is done over time with the intent of financing long-range goals such as retirement. Investing compensates for issues such as inflation. By the time you reach retirement, the cost of living will have increased quite a bit. Investments allow for compound interest and growth that yield higher returns to cover such costs.
Basics of Investing
When it comes to retirement investments, you really don’t need a lot of money to get started. The important part is that you do take steps to begin growing your money, and it’s best to start doing so as soon as possible. The reason for this is to take advantage of compound interest, a process in which interest continues to build upon itself over a period of time. It’s a powerful concept that is the building block of investment tools like stocks.
Choosing Investing
Stocks are one of the best ways to begin investing on your own over a large timeframe. The ups and downs of a market, along with the principle of compound interest, allow money to grow significantly.
A 401(k) or other matched investment with your employer is also a good route to take if you’re able. An employer matches some percentage of your contributions over the time you work there and choose to invest. With the help of an advisor from your 401(k) company, you can decide to create a portfolio of investments that are risky or safe, depending upon your comfort level and your age when you begin investing.
If you’re self-employed, you can contribute to a solo 401(k) or a Simplified Employee Pension (SEP) plan. These options allow you to participate in investment plans similar to those of more traditionally employed workers.
