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Seven Tips for Investing Success
Start Investing Today
Procrastination can put a big dent in your retirement investments.
Take a look at this example:1
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John
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Mary
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| Starting Age |
25
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35
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| Ending Age |
35
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65
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| Years Contributed |
10
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30
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| Monthly Contribution |
$100
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$100
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| Total Contribution |
$12,000
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$36,000
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| Aproximage value at age 65 |
$200,065
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$149,036
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As the example shows, John started investing at age 25 and contributed for 10
years. Mary invested for 30 years, but waited until age 35 to get started. At retirement,
John has a larger account not because he invested more, but because he started
earlier.
Consider the Impact of Inflation
Most people tend to forget about the effects of inflation when investing for retirement.
Even a low rate of inflation adds up over the retirement years and shrinks the
buying power of your investment. Look at these real-life examples of inflation:
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Today
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20 years from now2
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| Gallon of milk |
$2.66
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$5.83
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| Movie ticket |
$8.00
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$17.53
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| Family car |
$20,000
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$43,822
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Make Informed Decisions
Do you spend more time researching the purchase of a new car or cell phone than
in choosing your retirement plan investments? It is important to take enough
time to understand what you are investing in so you make the right long-term
decisions. You should also review your asset allocation (the mix of stocks,
bonds, and cash in your portfolio) once a year to make sure it's still suited
for your needs.
Don't Spend Your Retirement Investment When You Leave
a Job
If you take a cash distribution from your retirement plan when you leave a job,
you will lose a substantial portion of it to taxes and penalties. Here's what
you will pay:
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20% mandatory withholding for prepayment of federal income
taxes
- Additional federal income taxes depending on your tax bracket
- 10% early withdrawal penalty, if you are under the age of
59½
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State income taxes, depending on where you live
Be Sure to Collect Your Match Money
If your company offers a match based on your retirement plan contributions and
you are not participating, you are missing out on extra money. Your employer
will make this contribution for you if you participate in the plan and you meet
the match requirements. This match contribution will help your investment grow
faster.
Take Advantage of the Power of Compounding
Invest as much as you can in your IRA or 401(k), even if you can't afford
the maximum. You don't have to contribute $5,000 every year to start building
assets tax-deferred. Even $100 a month can make a big impact over time.
Try our Power
of Compounding Calculator to see how different investment amounts and
rates of return can affect your nest egg.
Invest Regularly
It's important to view investing as a process, not a one-time event. Often,
one of the reasons we don't start investing sooner is because, after paying
bills and spending money elsewhere, we don't think there's anything left
over. By using an dollar cost averaging, you protect yourself against buying
too much when prices are high and help reduce the temptation to sell at
a bad time – i.e., when prices are low. You can also make sure you
fully fund your IRA each year automatically.
Please keep in mind that a program of regular investments cannot assure a profit
or protect against a loss in a declining market. And, since such a program involves
continuous investment regardless of fluctuating share values, you should consider
your financial ability to continue the program through periods of low price
levels.
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Next Steps
15 minutes now could change the way you will live in retirement. Open your account online today and start investing for your retirement.
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