Wouldn’t you like to have a million-dollar portfolio when you retire? Making that a reality requires some serious effort. While we cannot guarantee your success in making such a dream come true we have outlined some steps to help you achieve your objective.
1. Map out your goals
The leading advice from persons who have acquired wealth is to state your goals and develop a course of action to achieve them. You can use the services of a registered financial adviser to help you map our your strategy to achieve your wealth.
2. Begin to save
If you don’t save, you’ll never reach your goal. As obvious as this may seem, far too many people never even start to save. If your employer has a contributory pension plan, enrolling in the plan is a great way to put your savings on autopilot. Simply sign up for the plan and contributions will be automatically taken out of your salary, thus increasing your savings and decreasing your tax liability. Furthermore, if your employer offers to match your contributions up to a certain limit, be sure to contribute enough to get the full match. It’s like getting a guaranteed return on your investment!
3. Get aggressive
The returns generated by an investment are dictated by the asset-allocation decision. This is the investment strategy that aims to balance risk and reward by apportioning your portfolio’s assets according to your goals, risk tolerance and investment horizon.
Although there is no simple formula that can determine the right asset allocation for every individual almost all financial professionals hold the view that asset allocation is one of the most important decisions that investors make. The three main asset classes – equities, fixed-income and cash and equivalents – have different levels of risk and return, so each will behave differently over time. If you are looking to grow your wealth over time, fixed -income investments, or a certificate of deposit (CD) aren’t likely to get the job done, and inflation can take a big chunk out of your savings.
4. Put aside for a rainy day
Part of long-term planning involves accepting the fact that setbacks will occur. If you are not prepared, these setbacks can put a stop to your efforts to save. While you can’t avoid all of the bumps in the road, you can prepare in advance to mitigate the damage they can do. Work with a registered adviser to help structure your finances to avoid financial disaster.
5. Increase the amount you save
A major mistake that persons make is to not adjust their savings as time goes by. Your income should rise as time passes due to the fact that you will get raises, you may change jobs, you may get married and you may have a two-income family. Every time more cash comes in to your pocket, you should increase the amount that you save. Unfortunately for many of us with the increase in our income, additional wants/needs arise which compete for the income. The key to reaching your goal as quickly as possible is to act as if there is no change in income and save as much if the increase as you can.
6. Watch your spending
Vacations, car, kids, and all of life’s other expenses take a big chunk out of your salary. To maximize your savings, you need to minimize your spending. Buying a home you can afford and living a lifestyle that is below your means and not funded by credit cards are key if you want to boost your savings. Develop mechanisms to make it to the end of the month before you run out of money.
7. Monitor your portfolio
If you’re a mid-to long term investor, there is no need to obsess over every moment of the stock market or investment products. Instead, check your portfolio once a year and re-balance your asset allocation to keep on track with your plan.
8. Maximize your options
Take advantage of every savings opportunity that comes your way. Make the maximum contribution to tax-deferred savings plans. Tax-deferred accounts provide the greatest benefit for investments that generate frequent cash flow, or distributions, that would otherwise be taxable, thereby allowing these payments to remain whole and be reinvested most efficiently. Taxable mutual funds and bonds produce the most frequent taxable distributions, such as interest, dividends and capital gains and thus so are best suited for tax-deferred growth.
9. Catch-up contributions
Look for more ways to save money and increase your nest egg for the fast -approaching golden years. When you reach age 50, you can check to see if you are eligible to increase contributions to tax-deferred savings plans. See if your bank or other financial institutions have any special plans or reduced charges for seniors and take advantage of these opportunities.
10. Patience is a virtue
“Get-rich-quick” schemes are usually just that – schemes. If something sounds too good to be true it usually is! The power of compounding interest takes time to build, so invest early, invest often and accept that the road to riches is often long and slow.
Remember the sooner you get started, the better your chances of achieving your goals!