Planning for retirement is one of the most important financial decisions you make. With Americans living longer than ever, a comfortable retirement requires diligent saving and strategic investing early on. Making smart choices with your money helps ensure you have enough income to last 20 or 30 years after you stop working.
Getting started with investing
If you haven’t begun investing yet, start as soon as possible. While it seems daunting at first, getting familiar with some key terms and strategies sets you on the path toward securing your nest egg. Asset allocation, compound interest, risk tolerance, and diversification are concepts to understand. A financial advisor like Fisher Capital in Beverly Hills helps you wrap your head around investing basics and develop a personalized plan. But even if you decide to go it alone, make sure you educate yourself before putting money into the market.
If your employer offers matching contributions for your 401(k), make sure you contribute enough to claim the full amount. It equates to free money added to your retirement savings. For example, if your company matches 100% of contributions up to 5% of your salary, you should contribute at least 5% to draw the match. Leaving matching funds on the table means passing up guaranteed returns. Fisher Capital Group notes that taking full advantage of available matches boosts your total 401(k) balance over time. Even an additional 1-2% per year compounds substantially after a few decades.
Asset allocation is key
When building your investment portfolio, asset allocation refers to how you distribute money across various asset classes. Major asset classes include stocks, bonds, real estate, commodities, and cash equivalents. Figuring out the right asset allocation involves balancing risk versus reward. More aggressive investments like stocks tend to produce higher returns but also higher volatility. Defensive assets like bonds and cash tend to be more stable but offer lower growth potential. As you approach retirement, it’s wise to dial down risk and shift more dollars into safer investments. You don’t want to lose a big portion of your nest egg just as you’re about to need it. fisher capital beverly hills guides clients on adjusting allocations over time to align with retirement goals and risk tolerance. The specific breakdown you choose for stocks, bonds, etc. will depend on your situation. However, maintaining a well-diversified portfolio across asset classes is key for mitigating risk.
Compound interest is your friend
Albert Einstein supposedly called compound interest “the eighth wonder of the world.” When your investment returns accumulate on top of principal contributions, earnings start growing exponentially over time thanks to compounding. Compounding works like a snowball effect for your money. The more time invested earnings have to compound before you need withdrawals, the more powerful the impact. Even lower returns like 6-8% compound into far larger sums over long periods. This concept highlights why consistent contributions and leaving investments alone for as long as possible pays off. Don’t get discouraged by modest first-year returns. As compounding kicks in over decades, results are astounding. Fisher Capital Group Beverly Hills utilizes compound interest to help clients achieve seven-figure portfolios.
