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4 Steps to Retiring with Fewer Money Worries and More Ski Vacations

By James Brumley - Feb 20, 2021 at 8:34AM

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Common sense and a little discipline mean so much more than understanding the market's internal mechanics and every facet of a cash flow statement.

People worry about a lot of things, but the one thing most people worry about more than anything thing else is -- no surprise here -- money. Specifically, they worry about not having enough of it in the future. That makes sense. A lack of it arguably causes the most personal stress, yet our financial situations are the one thing we feel like we can do the most about. That's the right recipe for worry.

If that sounds like you, take heart. A few simple steps can alleviate a lot of your biggest concerns, setting the stage for a pretty sweet lifestyle down the road.

Two skiers skiing down a slope.

Image source: Getty Images.

1. Start now (or even sooner)

Every year you wait to put your money to work costs you. The math varies a little from one calculation to the next, but on average, every 10 years you wait to invest reduces your portfolio's eventual balance by more than half of its potential value by the time you finally retire.

Putting this into perspective with numbers, achieving an average return of 10% on an investment of $5,000 per year for 30 years results in a portfolio worth more than $900,000. Making the same annual investment for only 20 years at the same rate of return only results in a little over $300,000. And 10 years? That won't even get you to the $100,000 mark a decade later using the same assumptions.

Start now, even if you can't start with much.

2. Make a plan ... any plan

As the old adage goes, if you fail to plan, you are planning to fail.

What that plan might look like depends on the investor. But the depth and detail of a plan isn't entirely the point. A plan is simply a proven framework that helps prevent you from being distracted by the noise you'll hear every day. Most of it is packaged as action-oriented, suggesting you must make some sort of buy/sell decision on a daily basis. That's simply not the case. Investors are generally better served by ignoring the constant stream of headlines that might steer you off course.

To this end, the key components of a good investment plan consider active-versus-passive investing, sector and style diversification, and exposure to less-covered areas like commodities and foreign stocks.

3. Automate it

Not all investors who are great at socking money away on a regular basis are equally as disciplined at putting it to work as it's accumulated. Big mistake -- you want to be exposed to the market as much as possible. Why? Because missing out on just the few very best days for stocks in any given year can cost you a fortune.

Take last year as an example. The S&P 500 gained 525.3 points, or 16.3%, between the last trading day of 2019 and the final trade of 2020. If you take out just the 10 biggest daily gains from 2020, though, the S&P 500 would have lost 30% of its value.

Granted, removing the market's worst 10 days of 2020 would have left the S&P 500 with an even bigger gain last year. The fact is, however, that nobody has the ability to spot the market's best and worst days before they take shape. The solution to the dilemma is simply putting cash to work as soon as it lands in your retirement or brokerage account. Most brokerage firms can automate recurring deposits and their subsequent investment in mutual funds. If stocks are your thing, you might have to handle those trades yourself.

4. Remind yourself every day it's a marathon, not a sprint

Finally, perhaps the most powerful way to worry less about building your financial nest egg is reminding yourself on a daily basis that time is your biggest ally.

In some ways, this idea combines the three previous premises. A clear, sound investment plan is typically a long-term one. The more time you're in the market, the more you're going to earn. And automating your investment is a way to ensure you're in the market and not missing out on unforeseen surges.

In other ways, however, this fourth step isn't so much a step as it is a mindset that needs renewing whenever you run the risk of losing your long-term perspective and get the itch to make an ill-advised move.

Timing the market is notoriously difficult ... to the point that most people simply can't do it. Often, the best move to make is doing nothing, even if the talking heads on TV are dishing out a seemingly different message. Take comfort in knowing the market has never not recovered from a bear market or correction, even if it's taken years in some cases to do so.

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