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The Easiest Way of Saving for Retirement: Investing

A lot of attention goes to various ways a person can save money – from storing spare change in a jar all the way to dedicating a large portion of your budget to a savings account. These money-saving methods cover a spectrum of strategies and amounts that they encourage you to put back.

money in jar marked retirement, for article on saving for retirement

While all effective in their own right, none of these methods is truly the easiest way of saving for retirement.

What is the easiest way? Simple: investing.

Saving for Retirement Through Investing

If you put $10,000 in a savings account, leave it there for 20 years, and then come back to withdraw it, you’re essentially still going to have $10,000. Sure, the interest that your bank pays will have grown your principle somewhat. But the truth is that the interest rates offered by most savings accounts are minuscule to the point of being negligible. Given that inflation is continually devaluing the dollar, the $10,000 you stored away in a savings account could actually end up being worth less than what it was when you first put it in there.

With investing, however, your money is allowed to grow in value rather than stagnating or actually decreasing in value. If you take the time to learn how to be a good investor – as you certainly should – your money could end up growing substantially over the years.

Can You Save $1 Million or More for Retirement?

stock market arrows going up and down, for article on investing as way of saving for retirement

You may wonder, though, if investing takes time and research, is it really the easiest way to save for retirement, regardless of whether or not it is the most effective? After all, putting your money in a savings account and leaving it there is effortless, whereas picking great companies that are going to grow over the years is not. Nevertheless, investing is still far and above the easiest way to save money.

Consider this: You’re not going to retire on $10,000. Instead, you are probably going to have to save up a million dollars or more to be able to comfortably retire and enjoy life. If you’re putting money in the bank or a safe, this means that every single penny of that million dollars is going to be money that you have to work for. Divide a million dollars by your hourly wage and you’ll see just how time-consuming traditional saving actually is!

With investing, though, all you have to do is save up a few thousand dollars, invest it in a great company at a great price, then sit back and watch your money grow. For example, if a person had invested just $10,000 into Wal-Mart in the 1970s when it went public, their money would have doubled once every four years. By the time they were ready to retire in 2002, the $10,000 they had invested would be worth $2.4 million.

Research to Avoid the Risks of Investing

Now, of course, not everybody is going to get into a stock like Wal-Mart on the ground floor. However, this example should give you an idea of the potential power of a great investment. The key to jumping on an established company such as Wal-Mart, which will be tougher these days, is to watch for an opportunity when a stock’s price becomes lower than the value you know it has.

I should also mention that there are always inherent risks with most investments if you don’t research and understand them. That’s why tracking the performance of the business and its management team is such an important part of Rule #1 Investing. When it’s your money on the line, you need to make sure the odds are good that you’ll see a return on your investment. Remember Warren Buffett’s first rule: “Never lose money.”

You can add some diversification to your investments in accounts that you gradually contribute to over time, such as a 401(k). The problem I have with 401(k) plans is that they generally force you to invest in mutual funds and charge you close to 25% of your expected return on investment – even if you don’t make any. Therefore, I only recommend this option when your employer is matching your contribution because, hey, that’s just free money!

Consider Simple IRAs, Too

For those who qualify, simple IRAs are great because they allow you to stash money without having to pay taxes on your profits when you withdraw money in the future.

These account types will diversify your portfolio across hundreds of stocks and typically allow you to choose between index funds and mutual funds. If you’d like to learn more about these options, take a minute to watch my short video that explains the difference between index funds and mutual funds.  

Get Started Saving for Retirement

Sure, there may be times where your portfolio requires management, and there are tactics that you will need to learn. But all of these tasks pale when compared with how much effort it would take most people to save $2.4 million just by drawing a paycheck and putting a portion of it in the bank.

For this reason, investing is by far the easiest way to save for retirement – and the sooner you get started, the better

Learn more about retirement planning in the After55.com retirement blog.

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  • Phil_Town_Rule_One_Investing_Profile_Image_230

    About Phil Town:

    Phil Town is the founder of Rule One Investing, a hedge fund manager, a two-time New York Times best-selling author, an ex-Grand Canyon river guide, and a former lieutenant in the U.S. Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.

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