This is The Retirement Planning Error That Could Cost You $1.5 Million
When you’re preparing for retirement, you’ll be met with countless decisions. Sure, some may seem like they don’t really matter at the moment, but trust us, every financial decision you make has an impact on your retirement savings.
Finding the Balance between Reward and Risk While Investing
When you enter the world of investment, the first decision you have to reach is: what is your strategy going to be like? Will it be more on the aggressive or conservative side?
Common sense dictates that it’s better to lean on the side of caution, and so you might remain significantly conservative with your investments. But, do you realize that being TOO CONSERVATIVE can also cost you millions of dollars?
When people choose to remain conservative in their trade, they go for bonds rather than stocks. This comes into play, especially when the stock market is volatile (which it usually is), so it makes more sense to throw all your money into conservative investment tools. It’s safer, and you’re guaranteed a return, right?
However, on average, over time, stocks outperform bonds. For over a century now, large stocks have cashed in an annual return of 10% on average. Comparatively, long-term government bonds reap returns of 5-6% per year on average. Putting this into perspective, you are missing out on those 4-5% extra gains every year leading up to your retirement.
Boosting Your Retirement Savings by $1.5 Million
According to the Bureau of Labor Statistics, the average US citizen working an average job earns about $48,000 annually. Now, let’s say you’re putting 10% of your salary aside for retirement savings (recommended by experts), which makes $4,800 annually.
Bonds offering returns of 5% would amount to $580,000 after you’ve reached the 40-year mark. Now, imagine if you could gain a 10% annual return rate. This would instantly boost your savings to $2.124 million, which is a whole $1.544 million more than you’d receive through conservative government bonds.
Sure, it is possible that you won’t garner the same return year after year, but the point is that you can save so much more for your retirement if you invest aggressively rather than conservatively.
Market downturns are a major concern for many investors, and here’s our advice for you: If your retirement age is decades into the future, you really shouldn’t worry about market downturns because the market always recovers. However, if you’re approaching retirement age, you should switch to more conservative methods because you really can’t afford any risks at this time.
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