Investing is a great way to multiply your money for a long term gain. Many people think that their money will be fine in savings or in their bank accounts, but when it comes to retirement we have to remember that inflation will slowly chip away at our savings.
Having investments means you will receive monthly or yearly income that matches the current inflation rate, instead of monthly payments that would have been good 30 years ago if inflation hadn’t occurred.
Over time, inflation will make your money less and less valuable, which is why investing for retirement should be on everyone’s mind.
The Time Horizon is the concept of your current age and your expected age of retirement. The longer the distance is between these two points, the bigger the Time Horizon you have.
Long Time Horizons (meaning over 10 years) gives you a better chance to earn lots of money ready for retirement. It can also help you figure out what to invest in.
People with short Time Horizons may want to stick with stocks. Stocks are volatile and may lose you money, however they can also give big rewards.
People with long Time Horizons may want to invest in real estate, which can take a while to receive but will steadily grow in time.
After Tax Returns
When you think about retirement investing, you should always be aware of after tax returns. This means the money you receive after paying the tax on your investments.
If you are in a long term investment, you should not expect a return of more than 10%. This is because, as the years go by, your investment will be seen as less and less risky. Less risk means less reward which in turn will provide you with a low yield. Don’t be disheartened though as you will still receive an income.
For example, if you invest in real estate worth $400,000 and you need to receive $50,000 a year, this means you will need to get an investment return of 12.5%. As 12.5% is higher than the expected 10%, you should invest early so the pocket of money you gather by the beginning of your retirement matches these needed values.
However, if you invested in real estate worth $1 million, the return needed will be 5%. 5% is more achievable than 12.5%.
With this in mind, you need to balance your expected wage of living with your returns after tax and your investment portfolio.
Risks and Rewards
Investments with low risk will give you low rewards; however, it should be pointed out that every form of investment will have some level of risk. This means that your invested money could be lost at any moment.
Because of this, you should make sure that whatever money you invest with, you are also okay to lose. You shouldn’t invest with money that is needed in your day-to-day lives. Instead, investing should only allow you to recreate a luxury level of living in retirement.
If you are planning to use your investments to make the bare minimum to survive, then this is not a wise choice.
Real Estate Investing
Investing in real estate is a great way to gain large turns at a steady pace. Each year your property will grow with value while you do very little to maintain it.
One problem that you might already foresee is that real estate is hard to sell on, which means that your money will be locked tight in this investment. This is called “Illiquid”, however, if you have a long Time Horizon, then it won’t matter that the money is locked away.
As your investment grows, you will still receive money through rent. This means you won’t need to cash in your investment until this monthly payment is no longer enough. As you may receive a landlord’s wage from renters, you might prefer to keep the building locked in the investment until you need a bigger payout.
Either way, you will receive monthly pay and a slowly growing investment.
Stock Market Investing
Investing in stocks is more complex than many people think, as you will need to do a lot of research to understand the risks involved and predict the best choices to invest in.
If you think that investing in the stock market sounds both exciting and doable, then we suggest investing no more than 10% of your portfolio into the program. This way, if you lose money in the stock, you will not have lost everything.
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