In Part 1 of this series, we focus on why it’s important to actively participate in your retirement planning and growth, and how to get started in getting your retirement accounts working better for you. Though we are not Certified Financial Planners (CFP), we relay some of the things you may want to consider as you work toward a comfortable retirement. We suggest that you consult with a CFP in your plans, while at the same time take the opportunity to learn how to potentially and dramatically grow your own accounts to achieve your goals.
Few traders know the difference between investing and trading.
That’s because so many traders do them both the same way. It’s helpful to know there’s an easy way to differentiate the two.
Investing is when we put money into the markets to be left there for a while. For example, we may buy Apple stock, and hold on to it for a relatively long time – perhaps even many years. When we buy it for investing, we almost think of the time to exit the trade as indefinite.
Alternatively, trading is when we enter into a position with a specific entry and exit in mind. It’s typically much shorter term than the period used for investing money. In fact, a trader can be in and out of a trade in seconds. A trade can last much longer, but a target and exit are in mind at the time of the trade.
Traders pay a lot more attention to charts, support and resistance levels, patterns, etc. They may even hold a trade for a longer period, often known as position or swing trading, but they still have a relatively short-term target in mind.
Investors on the other hand, pay less attention to the short-term movement of charts. They may use charts, but more likely they’re using charts that show movement over weeks, or months, and years. In fact, many investors aren’t that concerned about price at all at the time they enter a position. They are buying in for the long term.
Why would people want to invest their money in the markets, anyway? Why not just keep it in the bank? Yes, banks do give interest. And there are times when interest can pay well. But many times, including the past 10 years, the interest can be negligible. In the beginning of 2019, the average return on a Savings account was just 0.09%. That’s not 9 percent… it’s much, much smaller than that. It’s actually less than a tenth of 1 percent. If you had $10,000 in your savings account, the amount you’d earn at that rate in one year is less than $10. That probably doesn’t even pay for an overdraft fee.
Many people who rely on the small amount of interest given by banks in recent years have seen almost no growth in their account.
We also haven’t even mentioned the impact of inflation yet, which requires you to have more money each year just to buy the same things. If inflation rises by 2%, that means you need 2% more money to buy the same things the next year, including groceries, gasoline, medical expenses, and more. If you lived on $50K last year, you’re going to have to spend $51K, or $1000 more, because prices have been inflated by 2%.
While 2% may not seem like much to some, it can add up over time. You can search the web for calculators that show how much inflation affects prices over years. For example, you can look up what $1,000 in 1950 dollars is worth today. Many people would be surprised to learn that $1,000 in 1950 had the same buying power that over $10,000 has today. In other words, you need 10 times as much money in 2019 then you did in 1950 to buy the same things.
While this sounds dramatically different, remember that people make a lot more income today than they did in 1950, so the overall relative buying power stays largely the same. Sure, the price of a loaf of bread is many times more today than the 15 cents it was in 1950, but most find that their salary has risen almost as dramatically since then.
A Big Little Problem
But there’s one big problem. Little by little, and in some years not so little, inflation can slowly eat away at our gains if we don’t make sure that our money is growing all the time.
What’s important is that you need to make sure your investments are growing beyond inflation to get ahead. And just looking at the dollar amounts in your accounts cannot tell the full story.
Here’s the thing to realize regarding interest rates and inflation: if your bank account isn’t paying at least the rate of inflation, then your buying power of the money in the bank is going down. That’s right, you’re effectively losing money if it can’t keep up with inflation.
Therefore, one way to measure the success of your investments is to compare their growth rate to the rate of inflation. If the rate of inflation is higher than your investments’ growth rate, you’re effectively losing buying power. The further behind your investments are from inflation, the greater impact it has on your buying power. You could be trying to save money, but find you’re just treading water. And that’s frustrating.
Inflation rates are historically somewhere between 3% and 4% per year. If your bank is giving you anything less, then you’re losing money. Hopefully you can realize how making 0.09% on your savings account is costing you dearly, even if inflation is only 2%. That’s worse than treading water.
In order to stay ahead, we all have to find better ways to keep your money growing.
How Can You Get Better Returns That Beat Inflation?
Those who are wise about their money realize that they must find ways to get their money producing better returns.
There are many ways to get higher returns on your money, though many of them take a lot of time and work. For example, there are people who seek out properties that are low priced. They buy them at greatly discounted prices, put in a lot of money, a lot of time, and some aching muscles to fix them up, and then sell them at a higher “normal” price. The goal of “flipping” a property this way is to make a nice profit in a short amount of time.
However, most people don’t have the knowledge or desire to do this, and few people have the time, especially when they already work a full-time job. So instead, they need to find something that pays better than bank account interest, that doesn’t require them to spend a lot of time doing it.
For many people, that’s by investing in the stock market.
Over time, the stock market has produced amazing returns. This is especially true when analyzed over long periods. In both past and recent analyses, there were almost no times since the start of the US stock markets where a positive return wasn’t obtained over any given 10-year period.
That is, as long as invested money was left in the market for at least 10 years, it had a positive return. With this in mind, we can ignore the market fluctuations and just let it ride, with the knowledge that it should recover as long as we don’t try to withdraw from the account, and the market continues to grow, given enough time, as it’s always done.
For this reason, many financial advisors like to take any money that their client doesn’t need for the next 10 years or more, and place it into the stock and bond markets. They feel that the risk of loss is low, as long as that money stays in place for at least 10 years.
What Kinds of Returns Might I Achieve?
What kind of return can you expect from the markets? Well, that’s a matter of how much risk you’re willing to take. You could invest in higher risk market sectors, that hopefully result in higher rewards. The problem is that sometimes the riskier investments that pay big, also lose big. Therefore, trading with higher risk might be more appropriate for money that isn’t needed for a longer period of time. This way, there’s more time for it to recover after a draw down.
For someone who has less time left before they retire, they may want to take less risk in their investments.
Many investors think of this high / low risk decision as a big On / Off switch: that either their investments are all at high risk, or all at low risk. In reality, many knowledgeable investors benefit by having a mix of high, medium, and low risk throughout their lifetime.
And, they continue to have a mix of risk even after they retire.
In fact, what many smart investors do, is figure out how much money they’ll need in the coming years, and adjust the risk based on how far out they’ll need access to that money. If you don’t need access to a block of money for 20 years, then you might feel more comfortable placing that at higher risk, since there’s more time to recover if that high-risk investment didn’t work out. On the other hand, you probably wouldn’t want to use a high-risk investment choice on the money you need in the shorter term, say a few years from now. You need to be sure that money is available, so you may want to use lower-risk investments as the need date nears.
Planning Ahead to Know When To “Stop” Investing
You may already have a date in mind when you want to stop working and become “officially retired.” Assuming you’ve been saving and investing for years, should all of your money be invested at very low risk by the date of retirement? Most likely, no. Remember to keep in mind when you need access to the money, even as your first day of retirement nears. If you know you’ll need all of your money next year, then yes, lower risk would be wise. But most people live many years beyond their retirement – especially when they have money to have fun and stay active in retirement.
The last thing you want to do is stop your money from growing before you need it, because if you prevent it from growing, inflation will reduce your buying power. The key is to not think of it as an all or nothing model.
Instead of thinking about a single date where you need all your retirement funds to be available, you can structure your withdrawals over time. If you retire at 60, for example, you can start to reduce the risk on investments that you’ll pull money from within the next few years. You can still be a little more aggressive with the funds you don’t need 10 years or more from now.
For example, if you believe you’ll need $40K/year to live, you can calculate how much you’ll need over ten years as $400K. You can structure the near-term investments on the $400K differently from the balance of your investments beyond that $400K. (By the way, if you don’t have enough saved up for retirement yet, keep reading – we’ll get to that!)
When you’re estimating your needs, remember to factor in not just typical daily living costs, but both expected and unexpected additional costs. If you have plans for an RV, or a European vacation, or want to contribute to your grandkids’ education, put those into your plan to see how they affect your investments.
The unexpected costs are a little trickier. Many people are surprised at the cost of medical expenses as they age. While most of us don’t expect to have perfect health forever, it’s very challenging to anticipate the costs so we can set aside sufficient funds for these expenses. However, by the time most of us retire, we do hear about the high costs from friends who are going through their own procedures. Having health insurance can be expensive, but it can help remove the unknown. So planning enough for insurance premiums is also helpful.
Thinking about these things makes it even more clear how important it is to get enough money ready for retirement.
Some key things to keep in mind:
- Start early. If you haven’t started saving for retirement, don’t wait. Start now.
- Plan ahead. Identify your expense needs, both anticipated and unanticipated (as much as possible).
- Learn how to bring more income into your accounts now, so they can accelerate your nest egg’s growth.
That last point is what many people struggle with today. A surprising amount of people who are nearing retirement age haven’t yet saved enough to be able to retire with a satisfactory lifestyle. The solution for many is to keep working and working, and try to save more money. That can be extremely difficult, and having to “keep working” is certainly not a first choice for most.
Thankfully, an equally surprising number of people are taking their futures into their own hands and finding ways to get more income coming in now.
Finding Ways to Generate Income Now
One way people are generating additional income is by educating themselves on ways to make more money in the markets. We’ve already commented that the markets are traditionally one of the best places to get gains in the markets. The problem is, most people don’t know how to trade to make the money that they can then invest.
Very few people have ever been exposed to the many different income-producing opportunities that the markets can provide. What they lack is someone to teach them the skills that generate income from the markets. And since the markets are volatile, traders need to have ongoing updated training that adapts to the current market environment. What worked for your father or mother in the market may not work today. Identifying what’s working well now is critical.
Where can you learn how to trade so you can invest and grow your accounts? You want to be very choosy in where you find your methodologies. One thing that’s important is that you have systems that work, and knowledgeable instructors that regularly use the strategies that are working today.
At Basecamp Trading, we have dozens of trading courses that cover our methodologies. And we have over 12 hours of instructor-led live trading each market day, all year long, in stocks, options, futures, and forex markets. Our students are able to watch over the shoulder of our instructors as the instructors trade live in their personal accounts, calling out the trades to consider. And the students do this from the comfort of their own home, using their own computers and internet connection. While some students prefer to copy the trades the instructors are taking live, students are encouraged to learn the systems themselves and make it their own (as always trade at your own risk and analysis). They can learn at their own pace, choosing from the many different systems and methodologies that match their own interests and trading styles.
As we said, the time to start getting your account growing is now. Don’t wait another day. You can get started right now for just $7. Click on this link to watch our instructors live over the next month, and you’ll witness the successful techniques available for you to practice and learn to grow your accounts on your own. Most new students are amazed at what our instructors are making from the markets, and that includes many students who thought they already knew how to make money in the markets.
This could be the opportunity you’ve been looking for to get your retirement account back on track, so you’re not working and working yet another day when you’re ready to retire. And even if you think you’ll want to continue working into retirement age, it’s important to have a choice, just in case you change your mind, or circumstances require you to stop working.
A Better Trader Makes a Better Investor
Plus, there’s an important side effect of learning the markets. Once you learn how to trade, you can make even better decisions on how to invest your gains. For example, if you’re wise to trading methodologies, you’ll be able to recognize better entry points for your long-term investments. With the right training, many traders clearly identify when the markets are in a temporary downtrend, and can also recognize the signals that tell us when that same market is about to turn back up. With that valuable knowledge, you can avoid pouring your hard-earned money into a market that will lose it, and instead, identify the ideal entry time when the market is primed for growth.
In Part 2 of this series on Trading in A Retirement Account, we’ll cover more aspects to consider as you help your accounts grow. But as we’ve said many times above, the sooner you start, the better. If you haven’t already got your accounts on a clear path to being retirement-ready, starting now is imperative. Even if you’ve got a good start already, why not find out how to achieve a retirement account that makes you even more comfortable, able to better handle even those unexpected costs, or extra vacations. Who knows, you may even be one of the envied people who are able to retire early!
So take this opportunity now, and watch how our instructors and our students are generating income in the markets day after day. Join our $7 month trial today and learn about the ways the market can help you get that retirement account growing for you to reach your goals. Our proven systems have made a huge difference for many traders, and look forward to showing how it can make a difference for you!
Though we are not Certified Financial Planners (CFP), we have relayed some of the things you may want to consider as you work toward a comfortable retirement. We suggest that you consult with a CFP in your plans, while at the same time take the opportunity to learn how to dramatically grow your own accounts to achieve your goals.