How to Really Save for Your Retirement

Photo by Brian Foust

Photo by Brian Foust

I’d like to talk to you about how much money you’ve got saved for retirement. I know, you’re only twenty-six right now, but you’ll be amazed at how quickly thirty arrives, then thirty-five, forty, and you get the picture.

Money is an important commodity because, without it, most people find keeping a home, car, and full refrigerator a challenging task. Yes, bartering is all well and good if you’ve got established partners for everything you need but, so far, most of my friends say that some sort of widely accepted money is needed in life. Agreed? I thought so!

How to save regularly and painlessly

Your next questions are easily answered from here. You want to know how to save, invest, and make this a painless process. Most men and their partners say how confusing investment accounts are, and they want to know how to simplify the requirements of regular savings and investing for the future.

Most employees are offered a tax-deferred type of account or a retirement account to which they can contribute. Since tax deferral (or outright tax-free) is the simplest way to increase the amount of money you have—because taxes don’t take a regular bite out of the capital growth—use this method to save and invest whenever possible.

Knowing that everyone out there prefers to get rich as quickly as possible, consider getting rich in stages. Start by funding retirement (yes, it is a long way off but time and tax deferral dovetail beautifully to make you more money) and put as much money as you can without endangering the ability to pay for life’s necessities. Ask your employer to put away a percentage each pay period and you’ll never miss the money in the paycheck. If you don’t touch the money, you can save it!

Investment portfolio

When the retirement plan is off to a good start, think about how to make the portfolio of dreams a reality. You will use after-tax cash or, if you’re a key contributor in a business, collect stock options, restricted shares, or other corporate benefits to fund this sort of investment account. Since the investment portfolio isn’t protected from taxes, most investors want to take advantage of long-term capital gains to reduce the amount of taxes they pay when a profit is generated.

For instance, you buy shares of ABC stock and the company’s shares appreciate thirty-five percent in a week. That’s a really great return and you’d like to book the profit because shares trade up and down in the open stock market. However, you’ve got a short-term profit and it’s taxable in the U.S. at the current tax rate. If you’re like most people, you’re asking “How do I pay less in taxes and balance my portfolio returns?”

Selecting the right investment advisor

This is a good time to consider how to manage an investment portfolio of any kind for the long-term. Most investors may want to give into trading stocks or even options for short-term profits but statistics say this really isn’t a good idea for the long run. The truth is, almost no one (if anyone) “beats the market” over the long-term. The best advisors repeat that “Time in the market, not market timing, is needed to make consistently healthy returns” no matter where you live!

An investment advisor will make smart decisions for your money because the firm has fiduciary responsibility in that regard. If you’re a conservative, long-term investor, the advisor won’t recommend taking short-term trading profits or putting too much money into any one stock or other asset. He or she will make sure the portfolio is rebalanced regularly, too. This strategy keeps the proper portfolio balance regardless of where market drift brings the assets held in account.

Read the investment advisor’s fine print

Your advisor also treats all clients of the firm to the benefits of financial tools, such as Monte Carlo-simulated forward looking performance along with tax optimization and appropriate fees. You also need an advisor without obnoxious account size limits, such as “Our minimum account size is USD 500,000 and we charge one to two percent in management fees.” This sort of advisor is unlikely to benefit you and your portfolio!

Modern portfolio theory, tax managed-accounts, rebalancing

For instance, you build an original portfolio with fifty percent stocks and fifty percent bonds (fixed income). Stock prices rise and soon the portfolio mix is seventy percent stocks and thirty percent bonds. Without rebalancing the portfolio, when the stock market sells off (which always happens), the portfolio can’t take advantage of the protective nature of more stable fixed income.

Wouldn’t investing work a lot better if the financial advisor did some of this complicated legwork for you? And doesn’t it make sense if the advisor creates the portfolio based on your age and investment goals for the future? Although some investors enjoy learning what’s required to build and manage a portfolio for the long-term, most people (even very smart ones) don’t have the time or inclination to do so. Also, most investors don’t ask about the importance where to custody assets or what this statement even means to the security of their portfolio.

Start investing today—with only USD 10,000

The truth about investing is that there’s no right or wrong time to begin. The moment you understand the importance of using time and money to your advantage, the better. Identify a forward-thinking investment advisor like Future Advisor. Start with a modest USD 10,000 and, if you prefer, let them fine-tune the portfolio starting today.

If you’ve already got existing assets or stock positions, an investment advisor should evaluate them and make portfolio recommendations. However, the advisor should always leave the ultimate decisions about existing investment positions to you!

Note: The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.

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