Last week, we discussed the need to build a million-dollar investment portfolio through some combination of your personal investments and your employer retirement plan to provide an annual retirement income of $50,000 or more to supplement Social Security income.
Let’s continue our discussion.
Step 3. Invest as an Owner
Studies have shown that most returns generated by your investments are dictated by your investment-allocation decision. If you are looking to grow your wealth over time, fixed-income investments aren’t likely to get the job done.
Investing in equities entails more risk but is statistically likely to lead to greater returns. For most of us, we must accept temporary volatility if want to see our wealth grow. Investment-allocation strategies can help you select the right mix of stocks, bonds and other securities to improve your probability of success.
Step 4. Prepare for Rainy Days
Part of long-term planning involves accepting the idea that setbacks will occur. If you are not prepared, these setbacks can sidetrack your financial independence. While you can’t avoid all setbacks, you can prepare in advance to mitigate their damage.
Get adequate insurance. This includes insuring for:
- Disability: Your greatest financial risk is if you can’t work!
- Property: Insure what you cannot self-insure.
- Health: Are you feeling invincible?
- Life: Is anyone dependent upon you?
- Lawsuits: How large is your net worth, and who might want it?
Put money aside into an emergency fund. A reserve bank account or money-market account can help you ride out the surprises life throws at you. You must spend less than you earn to build savings. Savings can then help you avoid debt.
These principles work together. Adequate insurance and emergency savings are tickets that enable you to play the game to win. We have a choice: We can decide to be responsible and smart, or we can decide to become a victim and look to someone else to bail us out.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.