Retirement savings are not the first thing most people think about in the early days of their careers. That’s a real shame because the earlier you start saving for your retirement, the earlier you can retire. Not only that, but if you get a great retirement savings account, you will earn even more in compound interests.
But how do you identify the best retirement plans? In this article, I will take you through five top retirement plans. I will show you what makes them special and their possible drawbacks. Let’s get started.
Smartest Investment Options For A Retirement Plan
Here are some of the best retirement plans:
1. Mutual Funds
Mutual funds are some of the most popular investment options around. There are various reasons to explain why. First is the hands-free convenience. You don’t have to be an experienced investor to have a successful mutual fund account. When you invest in these funds, a certain fee will be charged. That fee goes towards paying an experienced portfolio manager.
Therefore, you can identify several incredible funds, channel your funds there, and not be actively involved in the day-to-day activities.
There’s also the option of reinvesting your dividends. Since you’re investing for your retirement, you don’t have to take your dividends out of the funds. You can have them buy even more shares in the fund to increase your earnings.
Mutual funds also offer incredible diversification. Your funds will not go into one single stock. Instead, they’ll be invested in multiple companies. This reduces the risk of losing your investment in case one company fails.
That said, mutual funds do have a few risks. For instance, some funds charge expensive sales charges and expense ratios. These can eat into your earnings if you are not careful. Therefore, make sure to invest in a fund with favorable fees.
2. Index Funds
Unlike mutual funds, where a fund manager invests in various securities, index funds invest in a few securities, e.g., the S&P 500. They track a benchmark market index.
Index funds are a great retirement investment option because they have lower management fees than most investment plans, including some mutual funds.
Index funds also tend to have decent returns, especially when invested for the long term, which is the goal of a retirement plan.
Lastly, and probably one of the biggest benefits of Index funds, is diversification. Your investment could be diversified into hundreds of stocks. Therefore, the risk of losing all your investment is significantly low.
3. Invest In Bonds
Bonds are great options if you are not okay dealing with the fluctuations of typical stocks. Bonds have predetermined interest rates. Investors get paid annually, and when the bond term comes to an end, you receive your initial investment. The term can range anywhere from 1 to as many as 30 years.
Therefore, if you are looking for something more secure, buy treasury or other well-established bonds.
You should know that bonds may not earn you as much money as you could with mutual and index funds. Moreover, if you decide to sell your investment before the bond term ends, you may lose money if the yields have climbed.
Bonds are more stable than stocks, but you have to be very careful about which bonds you are buying.
4. Invest in Real Estate Investment Trusts (REITs)
You can buy REIT shares through mutual funds or directly from the security exchanges. With REITs, you will invest in companies that buy, manage and sell real estate properties like malls, apartments, and so on.
It’s essentially a way of investing in properties without being directly responsible for managing the properties yourself.
Besides that, REITs yield high dividends, which can increase the income from your investment tremendously. You can then reinvest this income to boost your retirement kitty even further.
5. Retirement Savings Accounts
Last on the list is the retirement savings accounts. This is probably the safest bet, especially if you save in an FDIC-insured bank. But there is a tradeoff. Retirement savings account earn very little interest.
That may be an okay tradeoff for someone whose priority is safety. However, if you prefer to explore the maximum benefits of compounding interest rates, then you are better off with the other options discussed above.
And if you prefer to be more actively involved in your investments, you can trade the stocks yourself. Or explore other options like binary trading. The folks behind https://www.binaryoptions.com/glossary/ explain that with experience, binary trading is more like short-term futures trading. You just need to understand the market and make smart decisions.
Tips For Investing For Your Retirement
To save for your retirement properly, you need to do more than identify the right investment plan. So here are some additional tips to help you build your retirement fund correctly:
1. Create A Budget For Retirement
You need to treat retirement like any other expense on your budget. That means allocating a specific portion of your income to the retirement fund.
And you need to be disciplined about it. Remember, the more consistent you are with your monthly retirement savings, the more funds you’ll have to fall back to in your non-earning years.
2. Use Automatic Transfers
To foster your savings discipline, set up automatic transfers to have your retirement funds wired to the necessary account every month. It will reduce the risk of mixing up the funds and misusing them.
3. Build An Emergency Fund
We live in a world of uncertainties. You might encounter an emergency at any moment. For example, your car could encounter severe mechanical issues. Worse still, you may get laid off.
Prepare for such circumstances by creating an emergency fund. The account should have enough funds to cover for 3-6 months of expenses. That way, in case you encounter emergencies in the future, you won’t have to touch your retirement funds.
4. Clear Your Debts
It’s hard to break even in your finances when you have expensive debts weighing you down. It’s even worse if you get into retirement with tons of debts. You really don’t want that.
Therefore, work on clearing your debts as quickly as possible. Create a plan to pay off your debts, and be sure to prioritize ones with the highest interest rates.
To enjoy a comfortable retirement, you need to start your planning now. Explore the various options discussed above and find something that works for you. And you don’t have to settle for just one. For instance, you can invest in mutual funds, index funds, and have retirement savings account at the same time. The bottom line is you should start investing for your retirement right away.