It is easy to believe that investing for retirement means starting a retirement plan or building a retirement fund. The reality is that people must both save and invest for retirement. Understanding the difference between saving and investing is important. Only then will you be asking “When is the right time to incorporate investing into my retirement plan?”.
Saving is seeking to protect your money in low-risk accounts such as ISAs, other cash options and income options. Investing is growth-oriented. When you combine saving and investing with retirement planning, you’re putting money aside and also making it work for you. Retirement is, for most people, a long-term goal. It is only a matter of time before you need to start investing instead of just putting money aside in fixed annuities and savings accounts.
Portfolio diversification is an integral aspect of financial planning- and retirement planning by extension. Starting investing for retirement is synonymous with diversifying your retirement fund. The decision to entire the big league of investors when it comes to your retirement fund depends on the following:
1) Whether you’ve already formed a retirement base.
With proper financial planning, you use protection products before using growth options. A retirement fund is similar. You have to have a balanced portfolio, ensuring that you first save using cash and income options like money market funds and annuities. Only then should you invest in growth options. Another way to build your base is to save towards an income stream using annuities and income options, before investing to build your accumulated retirement fund.
2) The time-span and accumulated fund that you’re working towards
How late or early you started planning for retirement determines your investing horizon and how fast you have to start investing. If you start early, you can invest a larger portion of your retirement portfolio in growth options. However, you would do this once you have everything else in order. Those who started late and scarcely have time to reach a certain goal would not have the luxury of building their foundation properly.
3) Your available options
If you only have variable annuities as your “investing” option, then you should wait until you find something better. When you start investing for retirement would depend on the current state of the market and the degree of speculation about particular investment options and mutual funds.
You would not start building your house from the roof down. Investing for retirement sooner than you should and with greater quantities than you should, could jeopardise or destabilise your entire retirement fund. In diversifying your retirement portfolio through investing, timing is everything.
You must ensure that you have other aspects of your retirement plan and financial plan in order as well. This would include debt reduction, medical insurance and estate planning. When you have erected your financial foundation inclusive of products that protect your portfolio, you can comfortably invest for retirement.