I am seriously concerned about your retirement.
Yesterday, I came across a disturbing piece of information.
I read that the average American’s 401(k) balance is a mere $103,700.
As I dug deeper, I found that the situation is in fact even more dire, because rare millionaires skew that number upwards.
As it turns out, the median 401(k) balance, a far better representation of the actual situation, amounts to a measly $24,500.
This means that the majority of Americans are not experienced investors… and therefore are vulnerable, at risk of making mistakes that could cost them their retirement dreams.
But you don’t have to be among them.
You can drastically improve your retirement situation today if you follow these three simple strategies.
#1 Start Saving
First, think about your savings. How much money do you have set aside for emergencies?
The best way to approach savings is to calculate how much you spend each month and then, given how much you have saved, how many months you could live without income.
Savings represent freedom and security, and you should have enough savings to support yourself for six months to, ideally, two years.
Moreover, be cautious about debt. It can erode savings.
Sometimes debt can be a strategy. You can use debt to secure an asset such as real estate or work equipment that will produce extra income. Also, because you are paying it off and will one day own the asset debt-free, it’s forcing you to save.
If, however, you’re using debt for consumption, to buy a new TV set or a fancy car, you’re taking unnecessary risk and putting your long-term financial position in jeopardy.
#2 Invest Smart
As you save, you will soon face a dilemma:
What to do with all this new money?
I can tell you that the least risky and least volatile investment, a certificate of deposit (CD), is also the worst investment long term. You can easily calculate this by subtracting inflation from your after-tax CD returns.
If the CD rate is 3% and you must pay a 30% tax rate on those yields, you’re left earning only 2%. This means that, if inflation is running at 2%, you’re in fact making zero.
It’s smarter to move into other assets offering higher returns, such as stocks, corporate bonds, or real estate.
Moreover, it is crucial you diversify your money across different industries, countries, and asset classes. Some will be home runs… and some will be disasters… and you won’t know which is which until it’s too late to adjust. That’s the point of diversification, right?
#3 Beware Of Your Emotions
The third key to long-term financial success is to do the opposite of what your instincts tell you.
When you begin playing the investing game, you find out fast that emotions play an essential part in your decision-making thinking. You must learn to ignore them and even to act against them.
Stock market values reflect the sentiments of the crowd. They fall when the crowd is fearful and rise when it is greedy. You want to be on the other side of those trades, buying when no one else wants to and selling when everyone is buying.
It is emotionally uncomfortable to operate this way, because it opposes your instincts. You’re going to struggle with this in the beginning.
Until you master this strategy, I suggest you find a trusted advisor who can help you time the market while you get used to the emotional rollercoaster that is the investing world.