The only way to create wealth is to save. Only by saving will you have money in the bank or otherwise invested. By the time retirement comes around, the money you save today may have grown many times over. The key is to begin and to begin soon. Thanks to compounding interest, it's the money you save today that has the opportunity to grow by the most. Each year your wait can be costly, so make sure to save enough.
What type of investor are you?
All of us who think long-term are aware of the risks to the money we invest. Not all investments are appropriate for all people, especially from the perspective of risk. Be honest with yourself and assess what kind of investor you are.
| Investor type | Characteristics |
|---|---|
| Conservative | Preserves capital, wants predictable returns |
| Moderate | Wants long-term steady growth with income potential |
| Balanced | Balances between risk and return, accepts moderate market swings |
| Growth | Does not require immediate income, accepts potential of wider market swings as part of long-term growth |
| Aggressive | Accepts wide market swings in pursuit of long-term capital appreciation |
Based on this assessment, you can start thinking about your retirement plan. Your retirement plan needs to factor in your goals, investment timeframe and what you can afford together with your risk tolerance.
What retirement investments are available?
There are many different routes you can choose when investing, from stocks and bonds to fixed deposits and retirement annuities to money market investments.
Most of these investments carry some degree of risk. Even investments such as fixed deposits carry risk. Unfortunately, with greater risk, comes greater reward. However, if the risk does not pay off, you need to ask yourself if you will be able to recover from the loss. If the answer is ‘no' then you should avoid riskier investments. This sounds like common sense but people have made many silly mistakes with their money chasing golden rainbows. You don't want to be one of those people who make headlines for making bad decisions with your money.
How much will I need?
Experts recommend that you plan to have retirement income to replace 70% to 75% of your pre-retirement income. This is a good target to plan for until you are within ten years of retirement. At that point, comparing your present budget with what you desire to spend when you reach retirement will give you a more precise income target.
Taking all this into consideration and because planning for your retirement is key to your future security your next step should be talking to a Financial Services Provider (FSP).
Your adviser will conduct a regular assessment of your changing financial circumstances as well as help you take advantage of the markets where appropriate.
