How to Invest in the Stock Market for Retirement
Written by Becky Wilcox
It’s never too late to invest in the stock market for retirement– even if you are retiring soon or are already retired. Investing in the stock market has proven to be one of the best methods used in accumulating wealth– even in the short term. Stocks are assets known to trounce any other type of investment available.
When reaching retirement age, it’s understandable to be concerned about your financial status. Consider investing in stocks as a means to offset your post-retirement expenses. Before you begin investing, it’s important to understand how the stock market works and what you can expect.
Understand the Market
You cannot venture into this industry without understanding some basic information about how it operates. With a little research, you can become familiar with the language used in the industry so that you are not lost when stock jargon is used. Begin with the simple terms such as a stockbroker, money market, futures, forwards, and market fluctuations, and then expand from there. Keep in mind that on some days, trading is not available. For example, it’s good to know the Stock Market Holidays 2019 schedule and plan for days when the stock market is closed.
Profit Expectations
Profit earned from stock market investments can vary. Your broker can point you towards the safest investments with the best likelihood of short-term gains. Depending on your age, it may be prudent to include some 20-year investments in your portfolio as well. However, most of your investments should target returns after three to ten years.
Understand Risks
Investing in the money market is like investing in any other industry. It is possible to incur losses, especially if various factors don’t work in your favor. So don’t invest all your savings into the stock market just in case something goes wrong or there is another global recession.
Understand Diversification
Be sure to spread your investments over multiple entities and industries. It’s generally considered a bad idea to invest in a single company. It’s also not advisable to invest in the same industry, because the same issue could affect every company. The best strategy is to consider investing in several companies in different business sectors. For example, you could consider a technology company, a real estate company, a banking/financial company and a manufacturing company. Investing in a diverse group of entities will provide sufficient security for your investment. In case one industry declines, you will still have your other investments intact.
Invest in What You Know
One of the most important principles to incorporate into your investment plan is to invest in a company that you know. It’s hard to predict the success of a business if you don’t understand their business model. A good rule of thumb is: If you cannot explain what a company does in a single sentence, avoid investing in that company.
Take Advantage of Stock Volatility
High volatility rates characterize the stock market. Market volatility is the tendency of the market to either rise or fall sharply when responding to several variables in the market. The higher the volatility, the riskier is the market. Have a backup plan just in case the market takes a downturn by taking advantage of favorable fluctuations. For example, you can consider selling some of your stocks if they rise sharply before they bounce back down. You can make some profits in this period of uncertainty, and your broker should be able to offer you solid advice.
It’s Never Too Late to Start Investing
Investing in the stock market is a great way to accumulate wealth after retirement. You don’t have to wait decades before seeing a profit from your investment. Many options can offer returns in less than five years. If you are about to retire, or even if you are already retired, it’s not too late to learn how the stock market works and start investing.