Do you want to enjoy a comfortable retirement? Who doesn’t? According to the book, The Millionaire Next Door, wealthy individuals tend to stick to some pretty basic strategies.
Living frugally, adhering to budgets, and investing significant portions of their income, results in them achieving financial independence.
Once you decide to invest, choosing your investments wisely can make a big difference in the final result.
Index Funds
Most experts and financial advisors will tell you that your best investment will be in an index fund.
An index fund tries to duplicate the performance of a specific group of stocks, bonds or other financial assets. They are a low-cost way to gain exposure to broad sections of the market in a single transaction.
All you have to do is look at a chart of an index fund on the longest possible time scale to see a steady rise in price from the left of the graph to the right. Over time index funds have gained in value.
Even during times of economic stress, investors who managed to hold on to their investment, and not panic sell, have profited.
Index funds are cheap, reliable, and easy. These are the bedrock of an investment portfolio.
Individual Funds
While index funds are inexpensive and easy to invest in, they don’t always offer spectacular results.
Some percentage of your portfolio should involve individual share investing. This is more challenging and riskier. But with that risk comes the potential for higher reward.
Researching stocks is a fine art and even the most astute investors will not be successful all the time. There are different strategies for individual share investing, from value investing, growth investing momentum investing and more.
If you don’t feel confident in your research you can engage the services of a broker or financial advisor. There are countless newsletters and stock-picking services you can sign up for.
This type of investing should constitute a small portion of your portfolio. While some of your shares can lose money, it only takes one or two winners to make this very profitable.
Bonds
Bonds, otherwise known as government or corporate debt, have long been used to offset risk from stock investments.
With bonds, you know your return in advance. Bonds are sold based on discounts. You buy at a discounted price, and then on maturity, the bond will pay you a set amount.
They are not exciting but can offer stability during times of financial stress in other markets.
Cash Savings
Don’t forget to put aside cash. Experts recommend having one year of cash reserves. If you feel that you are missing out by holding large amounts of cash, there are strategies you can put in place to help increase your earnings.
You can invest in CDs and arrange them so they expire in a rotating cycle. This allows you to take advantage of higher interest rates than a savings account and still gives you access to your cash without locking it up for long periods.
The important thing is to live comfortably within your means and then invest for your future.
