Saving for retirement

I’m not a financial planner. I’m also not a CPA or some other type of accredited “money guru” out there that offers financial advice for pay. My financial knowledge stems from a minor that I earned in economics from my university, having read countless articles on financial topics on the internet, being an avid reader of the New York Times Business section as well as Reuters financial news, and my limited life experience.

In order for you to save for retirement, I offer these pieces of advice.

  1. Have a financial plan. Your financial plan doesn’t have to be anything complex. In fact, I feel the simpler the plan, the better the chances are that you’ll follow the plan, which means the more likely you’ll be to save for retirement. For example, I’ll lay out my plan – it’s basically an asset allocation that I’ve personally decided upon given my tolerance for risk, my investing time horizon, and my feelings about asset classes. For retirement investing, I chose some broad-index mutual funds from Vanguard and decided to allocate myself to 60% US stocks and 40% international stocks. For a while I was invested in a target-date fund but then I decided to go all-in for stocks after reading a New York Times article that I’ll link to here. It was the most convincing article I’ve ever read for an asset allocation favoring plenty of stocks in a retirement portfolio.
  2. Invest at least up to your company match. The company’s match is free money towards your future. If you can invest even more than the company’s match then certainly do so but to leave free money on the table just doesn’t make sense. Maxing out your 401k or 403b is probably the best thing to do for retirement investing but if that’s just not do-able for you then start with the match and gradually work your way up by increasing contributions year after year. Your future self will thank you for it.
  3. Keep costs low. You can do this by forcing yourself to invest only in passively managed index funds. They usually have the lowest expense ratios of the bunch and research suggests that over the long haul they simply perform better than the actively managed bunch.
  4. Start investing early in your career. One of the biggest things young workers have going for themselves is time. The power of compounding is massive, and it works its wonders when its given more time to do so. If you don’t believe me, Google search a compound interest calculator and play around with the variables a bit to see how small changes can make a big difference over time.
  5. Rebalance your portfolio at least once per year. This concept ties back to having a retirement plan. If you decide on a certain asset allocation, oftentimes you’ll find that after a year of allowing your allocation to play out, your ending allocation might be slightly skewed. For example if your US stocks start going on a tear while your international stock values decrease, your US stock allocation might be larger than you originally intended. You can rebalance by selling some US stock mutual funds in exchange for buying some international stock mutual funds. The beautiful thing about rebalancing is you then force yourself to buy low and sell high without even realizing it.

If you have any questions or any added suggestions feel free to comment. I hope you find this post useful.

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