Its great, you have started early saving towards your retirement. You have already worked out how much you need to save each month to achieve your end goal and you have invested it yourself or with a financial professional. You are paying monthly contributions, and have been for years and you are set for a great retirement, HOWEVER…
There are plenty of things that can go wrong between the start and finish or your investment! If you are not paying attention to your investments, you could end up losing some or even your entire retirement fund. For example, Inflation, Fees, Bad Risk Management, Poor Allocation, Diversification, Market Volatility, Other Fees, More Fees and, Even More Fees you didn’t even know you were paying.
Well, here is 7 ways to help you avoid losing your retirement money.
- Check Your Fees
No matter what investment you make or what size it is, there are charges and although they may seem low they have a massive impact on the overall performance of your portfolio.
If you do not understand your fees ask someone who does, they will be able to examine your investments and find every hidden charge and explain them clearly. For example, you may pay 15 – 50 Euros for a trade and if you are only trading 1000 Euros then that investment will have to go up 1.5 to 5% before you make profit. You might be paying high annual management fees to the advisory firm, high fund charges and high admin charges. Find out what these charges are and see how they are affecting your portfolio. It could be that you are paying more in fees each year than you are actually making!
Take special care with risk, risk is your personal tolerance to how an investment may potentially react in a down turn of a market. If you are a cautious investor, and you are in high-risk investments you will be very worried if an investment was suddenly losing 20% over one year. However, with risk comes the potential for a better return, but there is less risky investments that can produce just as good if not better returns.
Allocation is key to any portfolio; do not put all your eggs in one basket! Have multiple funds, ETFs, Stocks etc. You might decide to have 25% in Funds, 25% in ETFs, 25% in Stocks and 25% in Bonds across the board. You may decide to have 5 funds, 3 balanced and 2 higher risk, placing 10% in each fund and 20% in the other 3. The type of allocation depends on a number of factors taking all of these and more points into consideration.
This however, does not mean choosing different stocks in one market, if the markets go down, most stocks go down with it and so can the other countries markets. Over diversifying can also be a bad idea, e.g. you have invested into a Oil Fund and Natural Resource Fund, if oil goes down, natural may go up, if natural goes down, oil may go up. Eventually you may only get back what you put in, or at least somewhere close if you are lucky.
How often are you checking the performance of your investments? Once a year, when its time for that annual review with your advisor, if they decide to even call. Make sure that you get online access to view your investments and make sure you CHECK them and do it regularly, at least once a month. If you are losing money find out why! And if you continue to lose money find another advisor!
- Investment Type
What are you invested in and do you understand it? Never invest in something if you do not understand it! If your advisor cannot explain how the investment works in a way you understand, stay a way, do not sign on the dotted line unless you understand what you are signing!
There are many different investments and certain investments are not always best for everyone, there is an investment for everyone but you should seek professional advice to look at options that best suit your needs and goals.
- Time Horizon
How long are you investing for? Short, medium or long term, if you are in your 20s looking to save for your retirement, you are looking at a long term investment and you can look to invest in higher-risk investments. If you were only 5 years away from retirement, then you would want to invest in less risky investments and take a more cautious approach. You would not want to reach your retirement date and then look to see that the markets are crashing and you have lost 30-40% of your retirement fund.
If you are unsure about any of the above tips and want to get a review of your investments make sure that you get in touch with a professional.