When people buy a new car it is common to research the kind of car as well as the options. When a car buyer decides that his electric Chevy Volt is going to be forest green with leather seats and tan interior, and that music will be listened to on XM Radio with a CD player, he or she is customizing the car.
While this is common among car buyers, it is not so common for those who save and invest for retirement. This is because while people go to school to learn about a field they are interested in like medicine, education, and finance, they do not always get the chance to truly understand personal finance and are unable to begin properly planning for their retirement until years later.
Customized Retirement Begins With the End Result in Mind
Successful people always have the end result in mind. A marathon runner trains and visualizes himself crossing the finish line. Not only does he want to finish the race, but usually with a certain time to beat or match.
Just as a college student will see her degree plan laid out before her, a person interested in retiring should see an investment plan that can be followed over several decades.
This plan should involve an outcome to one’s desired lifestyle. For those who prefer the finer things in life, a lot of money will be needed and a retirement plan involving winning the lottery will not likely come to fruition.
It is important to tailor one’s saving and expectations accordingly. After all, it would be difficult to stop working at 65 with only $200,000 in retirement savings while wanting to fulfill a lifestyle that requires $4,000 a month. After five years, only defined benefits like social security and disability would be left.
Building a retirement plan involves selecting investment vehicles.
After Goals are Established, Investment Vehicles Must be Activated
Investments come in many forms. Among them are:
- Stocks
- Bonds
- Commodities
- Real Estate
Stocks include individual companies as well as mutual funds, 401(k) plans, and IRAs. Bonds can be long-term savings bonds like EE and I Series bonds, or short-term municipal bonds. Commodities include gold and silver, as well as soy, oil, and oranges. And real estate can be investment property or one’s personal residence if they plan to sell it upon retiring, or use it to make money by renting it.
The amount of risk one takes should be congruent with one’s goals. Risk is not a matter of specific investments, per se, but knowledge of a subject. A person getting into a foreign real estate market is taking a big risk if he does not know much about that market and/or property. The same goes for buying stock. Without study and a proper investment of time, a retirement plan will not be properly customized so much as thrown together on a wing and a prayer.
And while praying can be a good part of an investing strategy, it should not be the area where one is most reliant on when it comes to stock performance, or any other investment vehicle.
