But your savings shouldn’t just sit in cash. Rather, you should invest your savings during your career so your money grows into a larger sum over time.
A lot of people who are new to investing get overwhelmed by deciding how to divvy up their assets in their 401(k)s or IRAs. And many people make the mistake of buying into misinformation that could set them back from reaching their goals. Here are three such myths that have the potential to derail your retirement.
1. Stocks are a dangerous investment
Stocks are a pretty volatile investment. But to call them a dangerous investment is a huge exaggeration.
If you look at the stock market’s history, you’ll see that while it has experienced its share of upheaval, it’s also managed to recover from downturns every single time. You’ll also see that investors who rode out previous stock market crashes wound up coming out ahead financially, despite those temporary setbacks.
There’s definitely risk in investing your savings in stocks. But there’s also risk in not going that route.
If you play it too safe with your retirement plan and load up on bonds, you may not enjoy such generous returns. And that could, in turn, leave you with less money than you’d like for your senior years.
2. The more stocks you own, the better
Diversification is an important thing to have in your portfolio. It can lead to solid growth and protect you during market downturns.
But when it comes to owning stocks, it’s better to focus on quality more so than quantity. Rather than fixate on buying a specific number of stocks, you should instead pay attention to the types of companies you’re buying and the specific ones you’ve chosen for your portfolio.
3. Stocks should be dumped ahead of retirement
It’s true that as retirement nears, you should start shifting some of your assets away from stocks and into bonds, since bond values don’t tend to fluctuate as wildly as stock values. But that doesn’t mean you shouldn’t hold any stocks in your portfolio once you retire.
Quite the contrary — you need stocks in your portfolio to continue generating growth. It’s that growth that will allow you to take sizable withdrawals from your savings during retirement to supplement your Social Security income.
As a general rule, aim to have about 50% of your portfolio in stocks at the start of retirement. You can play around with that percentage based on your specific retirement age and comfort level. But don’t make the mistake of unloading your stocks completely.
There’s a lot of bad information on the internet that can lead investors astray. If you want to retire with enough money to enjoy your senior years to the fullest, you’ll need to learn to block out that noise and develop a strategy that works for you.
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