Saving for the Golden Years

Financial pressures loom like storm clouds over young parents: job insecurity, reduced home values, rising costs associated with education and college tuitions for our children, and more. These issues not only occupy our thoughts; they tend to max out our financial resources. For many, setting aside funds for retirement is not even on their radar. The task of saving for the golden years seems so daunting that paralysis persists and nothing is done.

A word of caution: No retirement plan usually equates to no retirement.

With that in mind, let me offer you some words of encouragement. Time and again, the clients referred to me with the largest portfolios are those who started amassing them while very young. They sometimes began with small amounts, but they persisted and increased contributions as their salaries increased. They consistently funded their accounts, both in good and bad markets. Often unbeknownst to them, two powerful financial strategies were at work: time in the market and dollar cost averaging.

One way to understand the impact of time in the market is to think about your home. You may not be satisfied with the current fair market value of your house and property, but unless you’re interested in selling now, does today’s value really matter? You probably anticipate that the value will eventually rise and all will end well.The same principle applies to investing.Inherent ebbs and flows of the market don’t impact you directly when you hold onto your assets instead of selling them during a slump. You adhere to a longer time horizon, and having more time in the market can greatly impact a portfolio’s long-term returns.

Dollar cost averaging, another high-impact strategy, can be compared to shopping. Several of my friends are savvy shoppers who know to visit certain stores each month to catch the best deals.Since I hate shopping, let’s say I only venture out twice a year. As a shopper, I am limited to the prices available on those two days, so I end up paying more per item. No, this isn’t permission for all of us to shop more! Rather, it’s an example of what happens when you contribute monthly to investments. Prices are going up and down every month that you set aside funds. Some months you catch a sale, and some months you don’t.However, the frequency of investment effectively lowers your overall cost in the long-term. Applying this strategy can make a significant impact on overall performance over extended time frames.

You don’t want to work all your life, so remember: Starting an investment plan while you are young can make a significant impact on your ability to enjoy a comfortable retirement. Good habits are key. It’s not so much the amount with which you begin, it’s simply that you begin. Get started now, while time is on your side.