The basic trait of good investor is start investing early. By investing early one gets two benefits, namely the time value of money and power of compounding. The earlier you start saving for your retirement lesser the burden. Let’s consider two people who starts saving for retirement at different age as mentioned below:
Person A, age 25, saves Rs.5000/- monthly for his retirement.
Let’s assume he invests in a financial instrument which fetches 15% per annum for next 25 years.
Person B, age 35, saves Rs.15000/- monthly for his retirement.
Let’s assume he invests in a same financial instrument which Person A has invested and gets 15% per annum for next 15 years.
Let the retirement age be 50 years.
Person A gets corpus of Rs.1,62,00,000/-
Person B gets corpus of Rs.1,00,00,000/-
The solution is simple the earlier you invest with little the amount more you reap.
Accommodate for inflation
With rising price, the purchase power of money will decrease. Let’s say you have Rs.100 today, and assume you keep the money safely for 5 years. What would be the purchasing power of Rs.100 after 5 years would be? Say it would be around Rs.90. Now imagine you invested in a financial scheme which is earning returns below inflation, and then you could lose money. Hence a typical investment scheme should accommodate for growing inflation.
Track you investment – don’t overdo it
It is better to track the performance of your investment scheme regularly, typically once in every 3 months. Never track your investment on a daily, monthly or weekly basis, because your emotions vary in line with the market trends. Hence invest in right schemes.
Diversify your investment
It’s always better to diversify your retirement investment rather than investing in a single financial scheme. By diversification you can reduce a risk of losing money considerably. This creates balance between under performing schemes and performing schemes.
Gradually increase your investment when you earning increases
With career growth and proper finance management, you can slowly increase your investment for retirement fund. This can be done whenever you’re earning increases. This has two advantages one is you get the power of compounding and also you are indirectly accommodating for growing inflation.
Buy a necessary medical insurance.
You should typically buy medical insurance, which should take care of your medical expenditures in case you fall ill. This will help you prevent erosion of your retirement savings.
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