Investing for retirement is very different from investing in general. There are a number of tax advantages and limitations, different investment objectives and very different schedule considerations in building a portfolio to last an entire career.
Retirement investing also requires a fair amount of discipline, as it is very easy to find excuses for raiding a savings account at various times in life when finances are at a premium or the family comes up short. Retirement money must be sacrosanct or all the work done to build and preserve it will end up wasted. If you are starting or building a retirement portfolio, here are some things to consider.
Early in your investing career, your objective should be growth. The accumulation of shares and the continuous buildup of the value of those shares is what drives the early development of an effective investment portfolio. Dividends and interest should be reinvested, and no principal or other income should be drawn out of your funds. This is a vital first step, because without sufficient value, it will not be possible to transition to an effective income strategy later in life.
Most early portfolios should emphasize high-growth small-cap stocks, companies likely to have share splits and companies with important long-term revenue strategies that can be had for reasonable share prices. These issues should be hedged one to four with income investments like municipal bonds and annuities or with precious metals and mining stocks.
Key to preserving any wealth in a retirement portfolio is properly managing your tax exposure. This is a task for a financial advisor or licensed stockbroker or accountant, as the rules regarding the tax ramifications of buying one kind of investment over another can be both confusing and expensive if you make a mistake. Tax planning should be done on a regular basis, perhaps once at the end of every year. This ensures you are constantly evaluating performance and any changes in your financial situation.
Your financial advisor should also be kept up to date with your tax filings year to year and you should pay special attention to any side gigs you might have, especially if they are their own business entities. The amounts you can save and divert to your retirement funds if you properly leverage your tax advantages are substantial.