There are no guarantees in life (except death and taxes, of course). But the more you plan, and follow your plan, the greater your likelihood of success in anything. If you want to retire with at least $1 million in your bank account, you'll have to start much earlier than age 65. Wherever you are in life right now, you can begin your retirement plan, if you haven't already. Follow this formula for investing success and a comfortable retirement.
1. Just get started
You may not think you have enough to start an investment portfolio, but you can get started with any amount of money. The longer you put money in, the more time it has to compound, giving you the greatest possible results. You can invest in low-priced stocks or fractional stocks, and there are some excellent stocks trading at less than $100 that could provide incredible gains over time.
There will always be reasons to tell yourself that now is not the time, but the best time is now.
2. Contribute monthly
The partner to starting early is to contribute monthly if you can. If you don't think you can do that, don't let that stop you altogether. Contribute when you have money you can put away to save after paying off debt and creating an emergency fund.
There are always deals to be found in the market, and it's better to save money in a secure investment than to spend it now and watch it disappear. You don't need to chase growth stocks or hot stocks. You'll often come out ahead simply putting your money away for safekeeping.
Buying an index fund, or an exchange-traded fund that tracks an index like the S&P 500, is an excellent low-stress way to do this, and you can add money whenever you have it.
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3. Take advantage of job perks
Many employers offer retirement plans with attractive features. A 401(k) plan gives workers tax breaks, and many companies give matching funds to employee contributions. Although this is the more popular employer-funded retirement account today, some companies offer other types of pension plans.
A lesser-known plan is the employee stock ownership plan, or ESOP. In the ESOP model, the company puts stock in a trust fund for employees to vest, and employees get the stock when certain conditions are met. ESOPs are usually created by private companies, and they offer benefits like tax breaks and money earned over time.
4. Diversify
If you put all your money in growth stocks, you might come out on top. It only takes one stock with outrageous gains to make up for other stock losses. But it's a risky play, and one you don't want to take with the money you're saving to live out your retirement years without worry.
Over time, value stocks tend to outperform growth stocks as a whole, since they offer steadier growth. Just ask Warren Buffett.
For most investors, the right strategy is a mix of both, as well as other assets that provide even more security and a hedge to stock performance. These could be short-term assets like money market funds, or long-term Treasury bonds and the like.
5. Live frugally
Finally, consider using less money now to pad your retirement later. That's the premise of the best-selling book The Millionaire Next Door. By avoiding overspending now, you'll pave the road to financial freedom.
Figure out where you can cut expenses to send money to your retirement fund. This could be another streaming subscription or trendy new boots. The short-term sacrifice will result in rich rewards.
The five-step formula to millionaire retirement
As a final note, it doesn't matter whether or not you have an education or a well-paying job. Peter Lynch has pointed out that it's often people like truck drivers and manual laborers who have an edge in investing, since they don't automatically conform to Wall Street dogma, which could set up investors for mediocre returns. Anyone who follows this formula could be on their way to millionaire status in retirement.
