During an economic downswing, many people shy away from investing. After all, when spending decreases, and unemployment rates increase, investing in your future may seem like a giant leap of faith.
Historically, the stock market has always recovered from every economic downturn, and generally can be relied upon as a safe place for long-term investment. Consider investing as part of your plan to save money for your future.
Long-term vs. Short-term Investments
Short-term investments often don’t pay off during an economic downswing. They can have high returns in a few weeks or a few months, but entail additional risks not usually found in long-term investments due to sudden fluctuations. When the economy seems volatile, you don’t want to expose your capital to the risks found in short-term investments.
Instead, invest money to save for retirement, focusing on investments with more robust gains garnered over the long-term rather than trying to gain from short-term volatility.
You can invest smaller amounts of money over a long period of time when you focus on long-term investments. Slowly but surely, your investments grow, and by the time you reach retirement you can have a tidy sum set aside to supplement your other retirement income.
Important Investment Strategies to Consider
If you have never invested before, the process may seem intimidating. Working with a professional financial advisor can assist you in planning for retirement. Financial advisors help assess risks and the amount of money you have available to invest, and recommend the wisest investments for you and your family.
Some strategies to help you begin investing include:
1. Begin Saving for Retirement With an IRA
Traditional IRAs and Roth IRAs each have a different set of benefits and drawbacks. Investigate both options before choosing the best one for you.
2. Strongly Consider Investing in a Mutual Fund
American-based Vanguard offers mutual funds for investors. The company has an excellent reputation and offers many investment options. A Vanguard funds manager can work with you to determine your financial goals and to help you with your investment choices. Thoroughly research any mutual fund before investing.
3. Open a College Savings Plan
If you have children or plan to have children, open a college savings plan. The two most popular options are the 529 college savings plan and the Education Savings Account (ESA). The plans provide tax benefits for participants saving for their children’s college education.
4. Diversify
You may have heard this tip before, and it still rings true. Make sure you have a well-balanced, diversified portfolio. Spread assets around, rather than placing all of your savings in one type of investment. Invest across a mix of stocks, bonds, cash, and international funds. Within your investments, diversify between different sectors and industries. Diversifying your portfolio helps you to manage your investment risk and protect your savings in the event of an economic downswing.
Don’t set up your portfolio and then forget about it until retirement time. You need to review your portfolio periodically, at least quarterly, to make sure no revisions need to be made to your plan. Meet with your financial adviser annually on a more frequent basis, depending upon your needs. Your investment portfolio needs regular care and maintenance in order to flourish.
Final Thoughts
These tips can help you begin saving for your future, but you need to conduct additional research before investing your savings. Further educate yourself by meeting with a financial advisor, taking classes, or joining an investment club – or simply do research online or at your local library. Your willingness to learn helps ensure that your investment portfolio will pay off during your golden years.
What’s your strategy for investing for the long run?
(This has been a guest post by David Bakke who is a contributor for the Money Crashers personal finance blog. He covers financial topics including budgeting, finding the best shopping deals, investing, and planning for retirement.)
Time is a big contributing factor to wealth creation (that and compound interest). Starting as soon as you can will make a very big difference in the end. I’m also a big believer in furthering your financial literacy and seeking help from the right people as much as possible. If you make it your business, you have a far better chance of success.
Shaun @ Money Cactus recently posted..Finding Ways To Earn More Money
Amen to starting ASAP Shaun! It’s critical that you start from the on-set. Heck, starting in high school is even better! Looking at compound interest charts really crack me up, amkes you wonder why more don’t invest early on lol.
Wonderful Wonderful tips above!
I completely agreed on every word in there! Saving long term is really wise thing to do especially today that everything is falling down because of recession!
I really hope that many of us will be able to read this article too!
Two thumbs up!
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Thanks for the comment Abnre! Yes, saving is more important than ever these days. With the neverending recession, it’s critical to save as much as you can. Saving might not be sexy but it’s important to living the comfortable life people want at retirement.
Long term savings and starting early are the most important things you can do.
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I beg to differ. Spending less than you earn, then saving for your long term goals, in that order.
Thinking of the big picture will let you progress in life as long you maintain clear on your goal. Long term savings will really pull you through rough times and pays of well in the end.
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Yes, they really do. With long term goals, your life is in clear focus it seems. I love being a big picture guy
Those are great tips for starting out. With the power of compound interest, every month you delay can cost you a lot in the long run. I would also consider ETFs in addition to mutual funds for someone starting out. The fees are often a lot lower depending on how you structure your accounts.
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