Many young people don’t invest for their retirement. After all, a date 40 years in the future is hard to think about. However, without investments to augment retirement income, when such a person becomes a retiree, they’ll find it hard to pay for the necessities of life. In this guide, young potential investors will learn how to build a portfolio and manage it for optimal results.
To build a solid portfolio, it’s important to start saving as soon as possible. If it’s offered by the employer, participate in a 401(k) plan; if not, establish an IRA (Individual Retirement Account) and set aside a portion of each paycheck. Remember that savings gather and interest will compound tax-free only if there are no withdrawals. Therefore, it’s best to establish a retirement account as early in one’s working life as possible.
Beginning Early Equals a Higher Risk Allocation
Another important reason to begin saving early is that the younger an investor is, the less likely they are to have other financial obligations such as children, spouses, and mortgages. Without such liabilities, an investor can allocate a bit of their portfolio to higher-risk investments, which return much higher yields. When a person starts investing early, they’ll probably have more available cash and more time before retirement, which allows them to build a bigger nest egg.
Diversify the Portfolio
When building a portfolio, it’s crucial to choose stocks from a range of categories; an index fund is an easy way to do this. Plan to invest in mostly conservative stocks that provide regular dividends, stocks with good long-term potential for growth, and a few higher-risk, high-return stocks as well. If investing in an individual stock, don’t put more than four percent of the portfolio’s value in. That way, if it has a downturn, the rest of the investments won’t be harmed too badly.
Regular, diversified, and disciplined investments in a tax-deferred 401(k), IRA, or Roth IRA, as well as wise portfolio management, can help a young investor build up a substantial retirement fund. Follow David Johnson Cane Bay for more solid investment advice and tips.