I recently wrote an article in which I presented five tips that young people should keep in mind when preparing for retirement. These tips included:
- Be patient and wait for asset prices to come to levels that you find acceptable.
- Use short-term market noise in order to pick up quality long-term holdings on weakness.
- Buy assets that will perform well over the long run.
- Buy assets that will generate income later and don’t worry so much about income now.
- Diversify, but not too much.
Here, I provide some more tips that young investors should employ in preparing for retirement.
1. Save regularly
Decide in advance on an amount that you want to save out of each paycheck and budget accordingly. Then, take the money you have allotted for retirement and put it away even if you don’t plan on purchasing any stocks with it at the moment. This might be hard to do, especially since retirement might seem to be so far away and a couple hundred dollars a week might not seem like that big a deal, especially if there is something you want to buy now. The way I overcome this psychological barrier is to think about what that money will be worth after it has compounded returns for 30 years. So, for example, don’t think of $100 as $100. Think of it as $100 compounded 10 percent annually for 30 years. That’s $1,745!