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Six Tips for Long-term Investment Success

Six Tips for Long-term Investment Success

    Bank savings accounts currently offer paltry rates of interest.  If you put leave all your money in banks it should be safe but will not grow much.  The stock market offers much more interesting returns but because of the element of risk many people avoid it.  Worse still they might enter the market at the top and then sell out later at the bottom.  Here are some simple rules to help you navigate the market and build a large stock portfolio over a long period.

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    1. Diversify. Spread your risks by investing in a number of stocks in different markets and in mutual funds, bonds and other instruments. A good rule is that no one stock or other investment should be more than 10% of your total portfolio. Invest in different geographic areas such as US, Europe, Asia and emerging markets. Diversify into property funds, commodity funds and hedge funds. This should give you protection against a collapse in any one particular sector.

    2. Do your research. Take advice from various sources.  Invest in some companies whose products and strategies you like.  There are a multitude of comparison sites and other resources on the internet to help you to analyse and understand investments. Past performance is no guarantee of future performance but I would generally prefer to choose a mutual fund or unit trust that had been a strong performer over the last two years and which offers low management fees.

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    3. Run the stars and sell the dogs. Monitor your investments and compare their performances against the market index.  If some of your holdings do well then the temptation is to cash in and take a profit.  It seems natural but if you are in this game for the long term then you want investments that grow over the long term so when you find winners cherish and retain them.  On the other hand you should ditch the dogs that significantly under perform the market.  The temptation is to hold onto them in the hope of a rebound or worse still to increase your holding at the lower price.  This is generally a poor strategy and it is safer to take a small early loss rather than a large one later on.  Do not cling onto stocks for emotional reasons.  Sell the dogs and run with the stars.

    4. Reinvest dividends.  A surprisingly large part of the overall growth in most portfolios comes from reinvested dividends rather than in appreciation of the stock prices. A yield of 3% may appear small but over a period it makes a big difference. Choose some investments with a solid history of dividends and use them as the ballast in your ship.

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    5. Be contrarian. This advice is much easier to give than to observe.  When the stock market is low buy stocks.  When the stock market is high sell your worst performing stocks and buy other investments such as property or bonds.

    6. Take the long view. You are in this for the long term so do not make frequent trades – the commission will eat into your funds. Do not follow fads and fashions.  Diversify in a sensible way.  Do not panic when markets occasionally crash – these are buying opportunities for the brave.

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    Finally be prepared to sell when you eventually need the money.  You invested it to build financial security for you and your family so it is better to use it when needed rather than to scrimp along in order to become the richest man in the cemetery.

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    Paul Sloane

    Professional Keynote Speaker, Author, Innovation Expert

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    Last Updated on June 6, 2019

    The Average Retirement Savings and How to Save Wisely

    The Average Retirement Savings and How to Save Wisely

    Are you on track for retirement?

    If not, don’t worry, I’m not sure either. I save each month and hope for the best.

    Fortunately, I’m at an age where most people don’t save so I’m ahead of the curve.

    But, what if you aren’t in your 20s? What if you’re near retirement and are looking to gauge where you stand?

    If so, keep reading. Here’s how to prepare for retirement and save wisely during the process.

    What Does the Average American Have Saved for Retirement?

    Saving for retirement is tricky.

    Tell someone straight out of college to save $10k a year for retirement and it’ll be next to impossible.

    Make the same request to someone decades older and they’d be more likely to be able to save this amount. But, a 20-year old college student can be “financially ahead” of someone saving more than them. Why?

    Age matters in your financial journey. The younger you are, the more time you have to save and put compound interest to work. As you get older and have more saving power, you’d have less time to put compound interest to work.

    Here are the average savings Americans hold by age bracket:

    20’s – $16,000

    During this stage, most people are paying loans and moving up the corporate ladder. Your best bet during this stage is to focus on eliminating debt and increasing your income. Don’t focus only on getting a high-paying job neither.

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    Instead, focus on learning via Podcasts, reading books, and taking specialized courses. Doing this will make you more valuable and give you more career options.

    30’s – $45,000

    At this stage, you’ve hopefully escaped your entry-level salary and work at a career you enjoy. Your earning power has increased but you now have more obligations. For example, marriage, kids, and a mortgage.

    Set a plan to pay off all your debt and focus on eliminating unnecessary expenses. Leverage financial tools like Personal Capital to ensure you’re on track for retirement.

    40’s – $63,000

    This is the stage where you’re at the prime of your career. Top financial institutions recommend you have at least 2 to 4 times your salary saved up. If you’re falling behind, start maxing out your 401K and Roth IRA accounts.

    50’s – $115,000

    During your fifties, you’re close to retirement but still, have time to save. You may be helping your kids pay college tuition and other expenses. Since you’re at the peak of your earning power, max out all your retirement accounts.

    60’s – $172,000

    By this point, you should have about eight times your salary saved up. If not, you’ll depend primarily on social security benefits averaging $1400 per month. Max out all your retirement options as much as possible before retiring.

    Ways to Save Money on a Tight Budget

    The sad reality is that most Americans aren’t saving enough for retirement.

    Even high-earning power isn’t enough to secure one’s financial future. You need to have the discipline to save for retirement while time is in your favor. Don’t wait for you to have a high salary to save, start with having a small budget.

    First, get a clear picture of where you stand. Write down a list of “needs” and “wants.” For example, Netflix and Amazon Prime are “wants” and a “cell-phone” is a need.

    Use tools like Personal Capital to analyze your spending patterns. Personal Capital allows you to add all your financial data in one place–making it a powerful option to gauge where you stand.

    Once you know all your expenses, organize them from highest to lowest expense. When you can’t cut more expenses, call your service providers to negotiate a lower price. If you’re not good at negotiating, use services like Trimm to lower your monthly expenses.

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    How to Save Money Each Month

    By this point, you know the average amount of money you should have saved for retirement based on your age.

    But, breaking this down into monthly goals can be challenging. Here are some rule of thumbs to follow:

    Aim to contribute 10%–15% of your salary each paycheck. Review your progress each week.

    Why so often? The reality is that life gets in our way and you will have many financial setbacks. Your goal isn’t to be perfect but to get back on track instead.

    Reviewing your finances weekly lets you know where you stand with your retirement. This doesn’t have to be a long process either. All it takes is login in Personal Capital to view your net worth and check how much you have saved for retirement.

    Turn saving into a game and aim to save more each month. It will get challenging but you’ll get creative and find more ways to save.

    Top Money Saving Challenge Tips

    To prepare for your financial future and not be another statistic you need to be different.

    How?

    By adopting new habits that’ll help you become a saving machine. Here are some ways you can save more:

    Automatically Contribute Towards Retirement

    If you’re working for a company, you can automatically contribute towards your 401k. If you’re not currently contributing more than 10%, make this your goal. Contribute 1% more today and automatically increase this amount a year from now.

    Odds are that you’re not going to be negatively affected by contributing 1% more. Many times we spend our money on things we don’t need. Contributing more towards retirement is a great way to secure your financial future.

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    Use the Right Tools to Know Where You Stand

    Once you’re contributing more towards your retirement accounts, gauge your progress. Make use of finance tracking apps to help you view the big picture of your retirement.

    When I’d first signed up for the app Personal Capital, I didn’t know I had a negative net worth. Despite saving thousands of dollars, my debt brought my net worth to the negative. Knowing this motivated me to save more and spend less.

    Now, I have a positive net worth. But, it was because I was able to view the big picture using the app. Find out what your net worth is using a finance tracking app and you may surprise yourself.

    Bring in Experts to View Your Blind Spots

    If you have too little or too much money saved, you should consider hiring financial experts.

    Why?

    You may need someone to hold you accountable to help you reach your financial goals. Or, you may need help managing your money as effective as possible.

    Regardless of the reason, getting help may help improve your financial situation.

    Before you hire an expert, find out which areas you need help the most. For example, if you’re constantly overspending, find a debt counselor. If you’re struggling with choosing the best investment options, hire a financial advisor.

    Speed up Your Retirement Contribution

    After learning how to manage your money well, the next best thing is to earn a higher income.

    You’re capped at how much you can save but not much you can earn. Even if your employer isn’t giving you a promotion, you can still take charge of your financial future. How?

    By starting a side-business.

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    This will be something you’d work on after you’ve finished your day job. Once you start earning income from your side-business, you’ll be financially better off.

    The best part is the more work you put into your side-business,[1] the more potential it has to earn more money.

    So start a side-business in an area you’re familiar with. For example, if you enjoy writing, do freelance writing for small e-commerce businesses.

    Once you’re earning a higher income, you can contribute more towards your retirement. Don’t wait for the right opportunity to secure your financial future, create one.

    Reach Financial Freedom with Confidence

    What if you were able to retire tomorrow with no problem, all because you’d have enough money saved up and little to no debt left to pay off? How would you feel?

    My guess is that you’d feel happy and relieved.

    Most Americans are falling behind their retirement goals for many reasons. They’re not prepared, they carry bad money-habits and are thinking short-term.

    For you to retire successfully, you need to work backward and adopt better habits. Contribute more towards your 401K and focus on growing your income.

    If you do, you’ll save money and pay debt faster.

    Don’t beat yourself up if you’re behind your retirement goals. Take the first step today towards a brighter financial future. Isn’t retirement worth the hard work and sacrifice to be at peace?

    Featured photo credit: Huy Phan via unsplash.com

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