One of the biggest concerns about retirement planning is uncertainty. There are always going to be a million things that we can’t control like interest rates, market returns, and inflation. That being said, there are many basic things that can help us provide as much security as possible.
1. Diversify Diversify Diversify: One of the basic principles of investing is not putting all your eggs in one basket. This means not investing in only a few stocks or putting too much of your portfolio in one industry. This helps us become less vulnerable to the performance of just a couple of companies or industries. Some people that are especially vulnerable are those that receive a large amount of stock options from a single company. If that companies stock prices was to drop in any significant way, their retirement goals might have to change dramatically.
2. Match your investment style to your time horizon: In most cases, a 25 year old and a 65 year should be investing in very different ways. A 25 year old has much more time to recover from any potential market crash and can and should invest more aggressively. A 65 year old might be planning to retire in just a couple of years and generally can’t afford to invest in anything aggressive. This does mean that the 65 year old will probably have lower returns compared to the 25 year old but it is very much worth the higher level of security.
These are two very basic tips that apply in most cases but everyone’s situation is very different. It is up to each individual to figure out what is best for their situation or to get professional advice to help avoid big mistakes.