For many investors, a successful retirement is in sight. But most are overlooking one important factor that is critical to creating a lasting foundation: your first five years of retirement.
Investments made in your first five years after retirement are likely to be long-term winners – and longer-term losers.
Some of the most successful investment strategies involve keeping the timing of your initial investments to a minimum – starting with those early retirement years.
Several factors contribute to this strategy, including time, quality of the investing environment, and how much you are willing to put into a potential winner.
Since your first five years of retirement are not only critical to your future personal financial health, but also to the long-term financial success of your retirement portfolio, this is your best opportunity to learn how to better invest your retirement savings.
The importance of investing early
Early investors make up more than half of all private investors, and over half of the world’s privately owned companies are founded before the age of 30. Because many retirees get their investments by what they draw from their retirement accounts – cash from a 401(k) or IRA, for example – early money can be much more valuable than later money.
For example, consider what could happen if you invest $100,000 of your first $1 million in your first five years of retirement. After 20 years, you’ll have $963,000 in your retirement account and your portfolio will return an average of 7.3 percent a year.
On the other hand, if you only invest $50,000 of your first $1 million in your first five years of retirement, you’ll only receive $98,000 in your retirement account and your portfolio will return 4.1 percent a year. And you’ll have spent your $50,000 much sooner than a single $100,000 investment would.
As a result, over a 20-year period, you’ll find that a $100,000 investment that you’ve made in your first five years of retirement now produces twice as much as one that you’ve only made in your first five years of retirement now.
In terms of outcomes, you can see that it’s vastly better to be an early investor.
Companies and individuals are also more likely to suffer a drop in share price when they cease operations than when they sell. This means that potential investments often have more staying power than anticipated.
However, investing even when you have money isn’t always a good idea. To make investing a winning strategy, you need to be a winner when it comes to selecting the right investments.
Making the right choices
Allocating your retirement money into the best possible portfolio at the right time is difficult – it requires confidence, knowledge, and the foresight to take a leap of faith. But doing so is smart – and it will boost your profits.
Assemble a full retirement portfolio and you’ll find that your first five years of retirement are the most valuable investment years of all.
The smartest thing you can do for the next phase of your retirement investment strategy is diversify. Adding stocks and bonds to a portfolio of common stocks will increase the stability of your retirement investments. Making a portfolio of businesses and stocks that match your investment goals and investment style is also likely to lead to higher returns than diversifying your portfolio into a portfolio of a few favored stocks.
By making the right investment choices now, you will ensure that you won’t fall prey to poor investment decisions later on. Because successful investments should be profitable over time, the time to invest for the long haul has never been more important than it is today.
Your first five years of retirement are a perfect opportunity to get in on the ground floor of a winning strategy. The decision to start investing early when you’re able to make most profit can make a world of difference to your long-term financial success.