So you want to retire early. I can’t blame you, who wouldn’t? Early retirement is easier to attain than most people think. If you want to achieve this goal, you must make sure that you are financially stable, and that your money is working for you as well. Your situation does not have to be perfect, it just has to be stable and ready for any twists life may throw at you. Can you be ready for anything? Of course not, but if you are prepared, you should be able to roll with any punches that life throws at you.
It used to be that people would not even consider retirement if their house was not paid off. Unfortunately, those days are gone now. Don’t let this discourage you from achieving your goals. Make sure that your retirement income is higher than your payment requirements, and that you have some sort of emergency money available to cover any unexpected costs that may arise. Make sure that this money is not locked away, and is easy to access at any time. The last thing you want is to miss payments or lose your home if an emergency occurs that you cannot afford.
The most important consideration when looking at early retirement is, of course, income and savings. With all of the banks and financial companies showing investments in our faces, it is easy to forget that most people have bot a government retirement plan and a employer retirement plan that will pay them when they retire. When you are planning your early retirement, make sure that you are well informed about both. Always remember that if you retire early, you may get less out of these plans, so make sure that you take this into consideration in your retirement plan.
Finally, if you are to retire early, you have to make sure that your money is working for you, and not the other way around. One of the best ways to save for retirement is to invest in mutual funds. Mutual funds can be very complicated and scary, but with the proper information can be one of the most successful elements of your investment portfolio. Here is some of the information that you need to know if you want to invest in mutual funds:
Mutual funds are basically pools of money that are used to buy stocks or shares in numerous companies. The manager of the mutual fund takes the money and buys shares in companies that he/she believes will be profitable. In exchange for this management, they charge what is called an MER (management expense ratio), which is usually between 1 and 3 percent. This is taken off of the performance of the fund, so if a fund says it made 10% in a year, it really made 12% minus the 2% MER. If the companies that the manager invests in increase in value, the fund increases in value and you make money. If the companies lose value, you lose money. The amount of gains and loses are lowered because the money is spread out into a number of different companies. To explain this further, think if you had all of your money in one wallet, if you lost that wallet, you wouldn’t have any money left, but if you had 2 wallets, if you lost one, you would still have half of your money left.
Some funds have themes that may vary based on the risk involved in the investment strategy. The higher the risk, the greater the potential to gain or lose money. The risk decreases over time, so if you have a long time to invest, you can take more chances. This concept is explainable by looking at the stock market indexes. They may increase or decrease in any given year, but over the long term (20+ years) will almost always increase, even if you include the stock market crashes. As a general rule, the closer you are to retirement, the less risk you want to take. Nothing is worse than having to change your whole plan just because the markets take a quick dive right before you retire.
Investing in the stock market is very complex, and most people do not have enough money to create a proper stock portfolio that is well diversified and protected against loss. Mutual funds allow normal people to be able to invest in a diverse portfolio that is managed and picked by professionals who know how to properly invest.
With mutual funds, it is important to note that past performance does not dictate future performance. Many people think that if a fund has always increased in value year after year, that it will always continue to do so. This simply is not true. Funds can vary significantly over time, and if everything is working well, will hopefully increase in value as an average. One fund that I have seen lost 5% for 3 years in a row, and then gained 200% one year, then went back to losing money again. If you invested in this fund for three years and then quit, you would lose money. If you invested in it for longer than that, you would gain money as an average. The mistake that people make is to try to get figure out when the fund will make that big gain, rather than invest for the long term.
In conclusion, you may be closer to retirement than you think. Make sure that you educate yourself with what is available, and plan accordingly. You don’t need to make things perfect, just stable and sustainable. This article will give you a start into some of the things that you have to consider, and the rest is up to you.