When talk turns to Wall Street, do you turn and walk away? In today's economy, investing is on everyone's to-do list -- right after paying the mortgage, buying food, paying down those credit cards, contributing to the children's college fund, managing those medical bills and … well, as the list goes on, investing has a way of slipping right off the page.
Lifestyle is a choice. If your current lifestyle uses all your income, it is time to cut back. Go back to the budget and start squeezing. Nobody dies from canceling your cable or cutting back on cell service.
Jim Heitman, Financial Advisor, Compass Financial Planning
Time Is Money
Investing isn't just for the wealthy, and those with modest or moderate incomes may need it even more.
While the concept of retirement might seem a bit optimistic to those faced with ballooning bills and never-ending expenses, planning now, no matter your age or financial situation, can only benefit you in the future. Your retirement might depend on it.
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"I was thinking about this the other day as I was laid up on the couch with illness and watching lots of sporting events," said financial adviser Ken Weingarten of Weingarten Associates, LLC. "As I was being bombarded with commercials for cars and beer, I kept thinking of the hundreds, if not thousands, of messages each of us receives each day to spend money. How many messages do we receive each day to save money?"
But if you want your bank account to outlive you -- or at least last long enough to give you a nice sendoff -- you have to sock some away. And one way to help is through investments.
Start With A Strategy
If investing has fallen off your to-do list -- and your radar -- it's time to give it another chance.
Even if the basics of stocks-and-bonds elude you, plan to start dipping your toe in the water now so you don't have to dip into your emergency savings later just to meet your basic expenses.
"Begin to visualize and talk about retirement with your spouse and friends," said financial adviser Laura Scharr-Bykowsky of Ascend Financial Planning, LLC. "Keeping it front and center can be helpful to motivate you. I recommend in my retirement workshops for people to create a collage of their ideal retirement. Select photos of where you would like to live and what you would like to be doing, and put that in a spot where you can see it frequently."
Think about a typical day in retirement, Scharr-Bykowsky said, or imagine what life will be like at age 90. This visualization helps anchor the future in reality, rather than in some distant and imaginary time and place. And once you can picture your future, you can start putting concrete plans in place.
It's good to start with a budget that includes savings for retirement.
"Cash flow is king in the financial world," said Jim Heitman, a financial adviser with Compass Financial Planning. "For example, say your employer has a 401(k) plan you can contribute to. Design a spending plan that assumes a slightly lower take-home pay, then enroll in the 401(k) to reduce your take-home by that much. Now, you are automatically saving for retirement."
Play it Safe -- But Not Too Safe
Whether you have a vault full of cash or just some loose change, don't invest more than you can afford to lose.
While it can solidify your future, investing can also damage your finances if you take too many risks. Take too little risk, though, and you could wind up with a stagnating savings account that can't keep up with inflation.
It is important to note which investments carry greater risk.
"Cash and bonds have lower volatility than stocks -- particularly small-cap value stocks (investments in smaller companies)," Scharr-Bykowsky said. "However, if you increase your stake in the small-cap value asset class, you can decrease your overall equity exposure (amount invested in stocks and shares)."
Heitman agreed on being too cautious through cash-based investments, such as CDs, fixed annuities and money markets, but warned that too little risk can leave you lagging behind.
Stocks and other equity investments can fluctuate dramatically, causing discomfort at best and panic in worst-case scenarios. But Heitman said those "scary" investments offer better odds at beating inflation over time.
"You need to take on more risk to get a better return over the long run," he said.
It is important to maintain a well-rounded portfolio, Scharr-Bykowsky said, and suggested looking to investment models that favor diverse assets to enhance performance and reduce risk.
"These simple, low-cost portfolios have far less volatility than the typical 60/40 portfolio (60 percent equities, 40 percent fixed-income instruments)," she said.
Only you can decide how much you can afford to lose -- and how much you might gain in the process.
Can You Do It? Yes, You Can
Even those with tight budgets and little disposable income can start to invest for retirement. The less one has, the more important it is to start now and Scharr-Bykowsky said to create an investment account followed quickly by establishing your emergency fund.
"The emergency reserve is very important for these folks (with little money to spare)," Scharr-Bykowsky said. "Their best savings strategy will be to maximize a 401(k) and/or IRA account -- contribute to get the full match if it is available, then focus on your emergency fund."
Paying yourself first might sound like a cliche, but the reason you hear it so often is because it really works. A study by the Employee Benefit Research Institute (ERBI) found that participation in workplace retirement accounts increases dramatically when there is an opt-out versus an opt-in provision.
But if you're still feeling frazzled about where to find investment funds, remember that almost everyone has options.
"Lifestyle is a choice," Heitman said. "If your current lifestyle uses all your income, it is time to cut back. Go back to the budget and start squeezing. Nobody dies from canceling your cable or cutting back on cell service."
Examine both your necessities and luxuries -- be honest and thorough -- and then decide what you can do without.
Also, think of consulting a certified financial adviser, such as one registered with The National Association of Personal Financial Advisors.
The more steps you take, the closer you will be to a secure financial future.
Investing For The Financially Insecure
Not sure how to build your retirement savings on a tight budget? Jean Setzfand, AARP director of financial security, offers these tips:
Assess your situation. On-line tools like the AARP Retirement Calculator help you know how much to save. Don't be discouraged if the number appears to be too large. Start small -- through the magic of compounding, even small amounts invested now can grow dramatically over time.
Allocate your saving. If you want to save, but don't have anything left over at the end of the month, it may be time to reassess your spending. Make a list of needs versus wants. Are there even a few "wants" you can give up to allocate to savings?
If your employer offers a 401(k), sign up and contribute at least enough to meet any employer match -- it's free money. If you don't have access to workplace savings, open an IRA with a reputable low-cost provider that's FDIC/SIPC guaranteed.
Shop around. Fees and expenses can vary widely between different investments and financial products. Using a discount broker and buying and selling investments online can keep your costs down. Also, consider index funds, which generally cost less than other funds.