Saving for Retirement

How to Best Save for Retirement

Saving money is very much like making money. There’s not much creative about it. It’s really more of a mechanical process. The only real difference between saving for retirement and saving up for a major purchase is the mechanism by which retirement savings can grow during the process. Even though the markets might experience highs and lows, the basic strategies to acquire this kind of growth haven’t changed much.

Dollar Cost Averaging

This is the simplest strategy for investment growth. All it really requires is the discipline to remain steadfast in its pursuit in order to be successful. To take advantage of this strategy, an investor should make purchases of a particular class of security at regular intervals. If the price is fluid, that means some portion of the investment will be purchased at a low price, and some will be purchased at higher prices.

This has the effect of acting as a self-protecting hedge against future price changes. The lower priced shares will appreciate more and reduce future losses. These offset the higher-priced shares, which will appreciate less and increase potential future losses. The resulting average gains will be lower than the absolute highest potential, but they will be achieved in a safer fashion.

Income vs. Growth

As assets grow, investors should begin modifying their portfolios to shift from higher-risk growth investments like stocks to lower-risk income investments like bonds or dividend-producing instruments like preferred shares of stock. This prevents investors from facing a situation where they might experience large-scale losses that will destroy hard-fought gains from previous investment successes. Bonds and dividend-producing instruments are less likely to experience volatility, and are therefore not as likely to produce large-scale losses.

Recognizing Opportunity

This is the most difficult part of an investment strategy, because it requires an investor to be aware of opportunities when they are presented as opposed to simply taking advantage of what might be considered serendipity. Noticing, for example, that a company’s share price is far below the value of its combined assets is a fine way to predict potential future share growth. What it means to a savvy investor is those shares might be under-priced, which means there is a built-in upside to purchasing them.

The same goes for certain market sectors. If an investor learns of a shortage in a certain kind of commodity, they may choose to purchase under-priced futures on that commodity in order to tae advantage of an obvious potential for a price increase in the future.

All of these strategies require planning and most importantly, require discipline. Retirement saving can be difficult, but with the right knowledge, it can be much easier to be successful at it.

David Milberg is a full time investor from NYC.

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