Common Mistakes That Can Affect Your Retirement

Business man with a head ache, isolated on white backgroundRetirement should be a time for rest and relaxation for people who have spend years and years in the rat race and stressful environments. But then again, it will depend on how you prepare for your eventual retirement. Come unprepared and you will end up becoming more stressed in your retirement years. You can easily ruin your future retirement if you make the following money mistakes.

Paying off debts first before saving for retirement

Although it may be logical to pay off credit card debts first before saving for retirement, it will have a drastic effect on your retirement nest egg. A majority of your retirement fund grows as a result of the power of compounding. If you invest what money you save for retirement into different financial instruments that earn you interest, reinvesting the amount along with adding your monthly contribution and interest earned will make your money grow faster, thanks to the power of compounding. But if you delay saving up for retirement, you lose out by not taking advantage of compounding. If you can, try to set aside money for your retirement, even while you try to pay off your debts.

Paying too much on investing costs

If you have a mutual fund as part of your retirement nest egg, you need to make sure if it comes at a cost. Mutual funds come with an expense ratio, the percentage of your investments that the mutual fund will charge each year for managing your money. It can sometimes come as a considerable cost. In a way, you lessen the growth potential of your retirement fund by spending some of it on investing costs. Try to find other investment options available that will not cost you considerably since you need to maximize your investment earnings.

Avoiding stock investments

It may be understandable for some people to be wary investing in stocks. It may prove to be too risky. But stocks as investments only become risky on the short term. They will not likely earn you profits for your investments instantly. But stocks can actually grow in value if you have a long-term investment plan. Stocks become an ideal investment if you wish to find other options available. How much you can earn will depend on other factors as well such as the choice of stock, health of the stock, price and growth potential. If you have an opportunity to invest in an attractive stock, try to consider diversifying by buying the stock as part of your retirement nest egg.

 

Posted by Ardent Editor on Mar 27 2014 in Financial Planning Tags: ,

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