Approach Retirement Without Regret
Bryan Ruder, CFP?, MSPFP, AWMA?, AAMS?, AIF?, MPAS?
First Vice President/Investments - Stifel
When looking back at your financial life, do you ever regret not saving more money? If so, you are not alone. While these feelings of regret can occur at any time, they most often occur as you approach retirement. According to the Federal Reserve Board’s Report on the Economic Well-Being of the U.S. Households in 2018, only 36% of non-retired adults think their retirement savings is on track. Saving for retirement early and often may help you stay on track by allowing you to leverage two of the most powerful financial tools at your disposal – compound interest and dollar-cost averaging.
Compound Interest
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Although most people are familiar with compound interest, many do not fully understand its power. Simply stated, the power of compound interest is its ability to generate earnings from your earnings. In other words, an investment generates earnings in the form of interest and dividends. If you reinvest these earnings, they may also generate earnings. To put the power of compound interest in perspective, let’s assume you invest $10 today and earn 8% interest annually. If you choose to reinvest your earnings, your initial investment will be worth more than $14 in five years. In 50 years, this initial investment will be worth more than $469. As you can see, by investing early and often, you can maximize the opportunity for compound interest and better position yourself to enjoy a fulfilling retirement.
Dollar-Cost Averaging
Timing the market can be extremely difficult. Those who try to do so risk making a number of grave mistakes that jeopardize their financial future. Confidence in a booming market can encourage investors to buy when prices are too high. Panic triggered by a market downturn can lead investors to sell when prices are too low. Sitting on the sidelines waiting for the right moment to enter the market can cause investors to miss out on great opportunities. Rather than trying to time the market, you may consider taking advantage of dollar-cost averaging. Dollar-cost averaging is an investment strategy in which you invest a fixed dollar amount on a regular basis, regardless of what is happening in the stock or bond market. The focus of dollar-cost averaging is time in the market rather than timing the market. When the market is down, you are able to buy more shares, which will grow in value when the market rebounds. This strategy also helps you maintain discipline while investing on a regular basis.
Learn to leverage the power of compound interest and dollar-cost averaging so that you can approach retirement without regret.
Article provided by Bryan A. Ruder, CFP?, MSPFP, AAMS?, AIF?, AWMA?, CRPC?, MPAS? , Associate Vice President/Investments, Stifel, Nicolaus & Company, Incorporated, Member SIPC and New York Stock Exchange, who can be contacted in the Evansville office at (812) 475-9353 or [email protected]