The end of the year rapidly approaches, and with it a buying frenzy for the holidays. After the frenzy comes regret and resolutions to do better next year. Holiday spending is a part of life, and it should already be in the budget. When planning for 2014, consider these five investment tips that can help create a secure financial situation now, and provide for retirement in the future.
Before looking for specific places and packages to invest in, consumers need to set aside funds reserved for investment purposes. An automatic transfer from a checking account to an investment account can help new investors stay on target for the year. When the money never goes into the household account it never gets spent. Ten percent of the total annual income can be a great place to start. For median income earners of $51,017 per year, that translates into $5,100 set aside for investing.
Right now, online investing sites are having deals to help motivate people to start investing in the new year. Scottrade is offering $100 back when you switch to their service, while TD Ameritrade is offering up to $600 off when you sign up. You can also get free trades; OptionsHouse is offering up to 100 free trades.
Few investment opportunities offer anything close to the return on an employer match to 401 (k) contributions. When was the last time a brokerage firm offered a guaranteed 50 percent return in the first year? Never. Most employer matches pay 50 cents on every dollar up to a maximum percentage of employee income. The standard maximum is approximately six percent. For median earners that translates into $3,061 invested for a total annual investment (with employer match) of $4,591. This money automatically deducts from payroll, removing the temptation to spend money that should be invested. It also increases in value over time, as funds are invested in a portfolio.
Investing in the stock market comes with a certain amount of risk, but it also offers potentially high rewards. Different strategies reflect the level of risk each investor is willing to tolerate. Historically, a balanced portfolio could be expected to return almost 10 percent on average. This could turn a $5,100 annual investment into almost $1M over the course of 30 years. That provides a relatively comfortable nest egg for retirement. If talking to a broker is too big of a step, it is a good idea to sign up for an online investing site to learn some information about investing on your own and then talk to one of their stock brokers. Scottrade and TD Ameritrade are the best for beginner investors.
Contributions to traditional IRA accounts are tax-deferred. Any money invested counts as a tax deduction until the money is withdrawn. Penalties for early withdrawal encourage investors to leave the money in the account until close to retirement age. An IRA allows investors a variety of options for how to invest the money, and all income grows tax deferred. This allows consumers to invest now and gain the benefits of compound returns, and pay the taxes later, when they have accrued more personal wealth.
The stock market goes up; the stock market goes down. Investors need options that stay away from the seesaw. Treasury bonds offer stability, though traditionally lower returns. Short term investments into T-Bills may not return much, but it is a virtually risk-free investment. Longer investments into Treasury notes allows investors to collect regular interest payments, which can be invested, and then sell the note for the face value when it matures. Savings bonds pay out compound interest, but must be held for at least one year. Bond investments offer variety and stability for the risk-adverse.
Creating a diverse investment portfolio is the first step in building a comfortable retirement nest egg. Diversified holdings include stocks and bonds, along with investments in employer-managed 401 (k) funds, IRA accounts and other investment opportunities. Consistently investing a small percentage of annual income can turn anyone into a millionaire within 30 years. Invest for the long haul and do not get caught short by retirement.
Advertising Disclaimer: Simple. Thrifty. Living. does receive compensation for some of the services that we recommend, although we only recommend services that we truly believe are the best.