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Time To Start Investing For Your Golden Age

June 19, 2008

It’s never too late to start saving for your future. You should begin set aside your cash for retirement as early as possible. You can’t rationally anticipate retiring in comfort unless you save.

When is the good time?

The market is has down significantly from the last peak in October 2007. The market may still continue going down or may be ready to take off; nobody knows. History of the Dow Jones Industrial Average index shows the longest bear market lasted for three years, which happened from 1946 to 1949. Market recovery is only a matter of time. In addition, short-term fluctuation in your investment is not relevant for long-time investment horizon, such as an investment for retirement. Nowadays should be a good time for starting invest for you retirement.

dow jones industrial average

How do you start investing for retirement?

Most financial institutions and brokerage firms offer such retirement accounts as Traditional IRA and Roth IRA. You simply walk-in or sign-up online to your financial institution to open one of the retirement accounts. If your employer offers 401(k) plan, you should take the opportunity.

What are 401(k), Traditional IRA, and Roth IRA?

401(k) plan is a defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.

IRA (Individual Retirement Account), also known as traditional IRA, is a tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn. A participant is able to roll over a distribution to another IRA or withdraw funds using a special schedule of early payments made over the participant’s life expectancy.

Roth IRA is a new type of IRA, established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to certain rules, are NOT taxed at all.

What is the golden rule of investment?

Invest your savings in a diversified blend of stock and bond funds. The key is to create a portfolio that’s aggressive enough to generate reasonable long-term growth. There’s no single “correct” mix of stocks and bonds; a typical blend of 65% stocks and 35% bonds is a good starting point. You can adjust the stock portion up or down according to your own tolerance for risk.

What is the follow up?

Your investment portfolio has to be regularly evaluated at least once a year. Changes in the financial markets or other circumstances might distort the balance of your portfolio mix. By reviewing your portfolios, you can ensure your investment mix remains aligned with your retirement objective.

your prospects will improve greatly if you save more. So look for opportunities to boost the amount you sock away, whether it’s using funds freed up from paying off credit cards, extra money you have after the kids have moved out or the mortgage is paid off or whatever.

So, why are you still waiting?

Remember that having comfortable retirement is got to start with saving. If you act now, you’ll definitely be much better off than if you procrastinate or end up doing nothing at all.

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2 Comments leave one →
  1. June 18, 2008 10:10 pm

    You are right of course about the long term.
    I’d be curious to see the dollar cost averaged data going back ten years, i.e. start in 1998, invest X$/mo (as in a 401(k) or IRA), increase the amount for raises and higher deposits allowed, and reinvest dividends. That data doesn’t seem to be too easy to gather, most stats will show point to point 10 yr return. But I think there’s some value in the averaged method as well.
    Joe

  2. July 12, 2008 10:39 am

    The most difficult part is the to start setting aside fund for retirement saving. The rest is much easier. There are tons of good investing articles to read and learn.

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