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In 2014 the stock market continued its trend of record highs and double-digit returns. The S&P 500 was up more than 12% last year and more than 80% over the last five years. Folks investing for retirement have enjoyed this hot streak, but can they expect it to continue into 2015?
Most economists are hedging their bets and predicting the stock market will slow down this year with the S&P 500 ending 2015 either slightly lower, flat or slightly higher. That doesn’t sound like much to get excited about, and since you have zero control over market performance anyway, it’s best to just ignore the economists and make sure you’re doing all you can to keep your retirement plan on track.
Start Off Right With a Debt-Free Foundation
We asked Dave’s Facebook followers what they’re planning to do this year to focus on their retirement goals, and, boy, were they amped up! Many of the comments showed that Dave’s fans have made the connection between getting out of debt and being able to save for the future.
“My wife and I both started the new year by putting 15% into our 401(k)s,” Ryan H. said. “We didn’t contribute anything over the last year and a half. We paid off all our debt and cash-flowed a wedding and honeymoon.”
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That’s awesome, Mr. and Mrs. H! By putting all their extra income toward paying off debt, they created a strong foundation for their retirement savings.
“Last year, I paid off my student loans, completed my emergency fund, and increased my retirement savings to 15%,” Alyssa J. told us. “This year I’m maxing out my Roth IRA.”
Talk about setting yourself up for success! Alyssa is just 25 years old, and she is on her way to one solid retirement fund!
None of the Facebook comments showed any concern for what the stock market might do this year. Nearly everyone was focused on getting out of debt so they could start investing or increase the amount they are investing. We love that! Why? Because your retirement outlook doesn’t depend totally on market performance. It depends a lot on these three factors—and they are completely under your control:
The Retirement Contribution Sweet Spot
Both Ryan and Alyssa said they are investing 15% of their income for retirement. This is the retirement contribution sweet spot. It’s enough to get you going on your retirement goals while leaving you enough income to reach other goals like saving for college or paying off your home. Once you reach those goals, you can go back and bump up your retirement contributions.
Start by contributing enough to your 401(k) to receive the full employer match. Then put the rest in a Roth IRA. No match? Invest your full 15% in a Roth IRA.
Rev Your Retirement Engine With Good Mutual Funds
In both your 401(k) and your Roth IRA, choose good growth stock mutual funds to invest in. You may not have a lot of choices in your 401(k) since most plans limit your options to a couple dozen funds. But with a Roth IRA, you can choose from any of the thousands of mutual funds on the market.
You’re looking for more than current top-performers. You want funds that have a 10-year or longer history of above-average returns.
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If you’ve had retirement accounts for a few years, and you’re not feeling confident about the investing choices in those accounts, it’s a good idea to review your mutual funds to see if better options are available. An experienced investing advisor can help you decide what, if any, changes you need to get your retirement plan back on track.
Adjust Your Retirement Lens to Long-Term Focus
As we pointed out, the stock market has enjoyed several years of growth, but we all know that can change at any time. In order to reach your retirement goals, you have to be prepared to stick with your mutual funds when that happens.
That’s why it’s important to work with an experienced investing professional to set up your retirement investments. They’ll help you identify solid mutual funds and show you how a good mix of fund types will help protect your nest egg from the ups and downs in the stock market.
As a long-term investor, your goal is steady growth. To achieve that, keep contributing to your retirement accounts and hold on to your mutual funds in good markets and bad. Investor habit studies have shown that folks who maintain a long-term view of their retirement investments potentially earn 7.5% more annually on their retirement accounts than those who give up when the market turns sour. For a retirement investor just starting out today, that’s a difference between a $366,000 nest egg and one that’s worth $1.5 million after 30 years of investing!
Another benefit of working with an investing pro is that they will help you maintain your long-term investing focus. If you’re feeling panicky about stock market swings or if you have questions about your mutual funds, you can call on your advisor for answers. Your advisor has been through market cycles many times before and will give you objective advice so you can make decisions based on facts instead of emotion.
We can put you in touch with an investing advisor in your area who has earned Dave’s recommendation for excellent service and advice. Get your retirement plan in shape and on track today!