Time, as they say, is money -- and that's particularly true when it comes to the money you sock away for retirement. So let's cut to the chase. Here are three hot tips for serious retirement savers:
1. Get going now.
Time is your biggest ally when it comes to saving for retirement. All else being equal, an investor who begins plunking down hard-earned savings at 25 has a huge advantage over someone who waits until the age of 40. Thanks to the miracle of compound interest, that advantage amounts to far more than just the additional principal the young whippersnapper kicked in.
Consider this: An investment of $10,000 that earns 10% annually over the course of 40 years will amount to nearly $453,000. Over the course of just 25 years, however, that same 10 grand increases to a mere $108,347.
2. The perfect portfolio is a work in progress.
As you get older, your timeline and tolerance for volatility change. With that in mind, it's crucial to recalibrate your portfolio so that, as retirement approaches, you focus more on preserving the wealth you've built up and intend to live on.
On that front, getting your equity-to-bond exposure right is a critical calculation, as is ensuring that you're kicking in enough moola each month to fund your future needs.
You should also ensure that your asset-allocation game plan makes sense on a more granular level.
For example, a portfolio that features hefty exposure to souped-up companies such as Apple (Nasdaq: AAPL ) , Sprint Nextel (NYSE: S ) , and Amazon.com (Nasdaq: AMZN ) -- each of which sports a price-to-earnings ratio that dwarfs that of the broader market -- may make sense for 30-year-olds with three decades of employment ahead of them.
But 50-year-olds looking at just 15 years of regular paychecks (give or take) should be more conservative. Bonds, for example, should take up more of their portfolio's pie chart, while their equity exposure should focus mainly on more buttoned-down fare such as Citigroup (NYSE: C ) and Home Depot (NYSE: HD ) , dividend payers that have delivered the goods over the course of many years. Vodafone (NYSE: VOD ) and Duke Energy (NYSE: DUK ) fit that profile, too.
Whatever you do, don't assume that a buy-and-hold investment philosophy (admirable as it may be) means that your portfolio is a "set it and forget it" entity. Pity, for example, the poor equity-heavy retirees who left their jobs for a life of leisure just before the market melted in early 2000.
3. You are the best person to control your financial future.
At the Fool, we firmly believe that individual investors -- when empowered with tools and information -- can easily surpass the returns they'll likely receive by relying on the "wisdom" of a broker. And there's a built-in competitive advantage that comes with following your own advice: You won't have to pay an inflated sales charge for the privilege of doing so!
The Fool, of course, is full of advice and commentary designed to help you hit your golden years with a fat nest egg in tow. In addition to our Retirement, IRA, and Savings centers, there's Robert Brokamp's Rule Your Retirement, a service that's 100% dedicated to the cause of helping you plan well and become wealthy.
You'll benefit from the online planning tools and timely advice from retirement-obsessed Brokamp, as well as a world-class discussion board community. Rule Your Retirement also provides access to the insight of investment wonks such as Ben Stein and Joel Greenblatt. Ben and Joel were interviewed for the pages of Rule Your Retirement, and if you'd like to view their thoughts -- as well as the entire Rule Your Retirement shebang -- all it takes is a free 30-day guest pass.
This article was originally published on April 4, 2006. It has been updated.
Shannon Zimmerman is the lead analyst for the Fool's Champion Funds newsletter service and co-advisor of the Motley Fool Green Light service, and he doesn't own any of the companies mentioned. Amazon is a Motley Fool Stock Advisor recommendation. Home Depot and Vodafone are Inside Value selections. Duke Energy is an Income Investor pick. The Fool has a strict disclosure policy.