Young investors have a huge advantage that will allow them to secure their financial future without much
effort. There are basic lessons that will help secure your future and allow you to have more fun now.
Social Security and pensions probably won't be around when your teenager reaches retirement age. In the
last ten years we've experienced a large reduction in pension plans offered to employees. Employers are
replacing pension plans with contributory retirement programs. Unfortunately, according to a report of the
National Association of State Boards of Education, "most workers with access to these contributory
programs are not participating sufficiently to allow them to retire in their sixties without suffering a great
decrease in their standard of living."
This may mean that everyone under age 30 will need to self-fund their own retirement. In order to be
financially prepared, it is important they start investing young and avoid financial pitfalls that plague many of their peers. This requires they learn the basic financial education skills so they are financially prepared.
To be financially prepared for Feb.rements today's youth will need to have over a million dollars to be fully
financially prepared for a self-funded retirement.
After calculating the long-term inflation rate, a young adult today will need over a million dollars in order to retire on an annual income of around $35,000 (today's dollars, adjusted for inflation and salary increases). This is assuming that they live to be ninety years old. However, with the improvements in medicine, many experts feel we will live beyond that mark, so just planning to five to 90 may not be enough. And $35,000 annual income per year is not a lot of money to enjoy the golden years.
1. Buy in a declining market to take advantage of lower prices
2. STAY invested... Take the long view and continue contributions while riding out
market ups and downs.
3. Sell or rebalance when the market is rising to lock in gains
1. Sell low: Locks in your losses
2. Cash out: Wait until it is 'safe' to re-enter the market after it has recovered
3. Buy high: Get back into the market once share prices are rising
Overreaction, herd mentality and over confidence drives Irrational Behavior. For instance,
responding in the extreme to the latest market noise, causes erratic swings in your investment
decisions. Following the 'crowd', after all, how can everyone be wrong? Believing in your
ability to 'time the market'
Ideas to combat Irrational behavior
1. Have discipline to maintain your long term strategy, regardless of the market noise
2. Have a well diversified portfolio
3. Have assets allocated based on your time horizon and risk tolerance
Remember, it is always a good idea to analyze your investment performance as it relates to
your risk tolerance. Tweaking your investment choices periodically can make a huge difference
in your returns by eliminating poor performing investments.
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