Investment for Early Retirement

By: Elton John
Below mentioned instance wouldexplain the above-mentioned point.

Take the case of two investors,investor A and investor B. Investor A deposits $ 12,000 each year for a periodof 10 years beginning from the age of 35 without adding anything more. Thetotal contribution by investor A comes to around $ 1, 20,000. The secondinvestor, investor B waits until the age of 45 and then, invests an amount of $12,000 each year for the next 20 years. The total contribution by investor Bcomes to around $ 2, 40,000. Both earn an interest of 7 % sheltered, compoundedfrom taxes in the Registered Retirement Savings Plan.

By the time both reach the age of65, while the investments of investor A would come to around $ 686,494, theinvestments of investor B would come to around $526,382. The reason for theinvestor A doing much better than investor B is the fact that, investor A beganearlier. Over time, the compounding of interest is extremely powerful.

Strategic Investments:

To use a sound investmentstrategy is the next most important role in the achievement of higherretirement savings. However, sound strategy is not necessarily the safeststrategy. Rather, the sound strategy is the one that involves going muchfurther by taking a moderate form of risk with the boosting of average annualreturns over a period.

For instance, consider aninvestor starting his investments with $ 1, 00,000. After three decades, thevalue of portfolio compounded at the rate of 5 % may come to around $ 444,671.If, however, the portfolio compounds at the rate of 8 %, the value would cometo around $ 1,052,470. This is the main difference and can mean a lot to thecomfort level of a retired person and the enjoyment of rest of his life. Thisillustrates the reason as to why it is necessary to work hard, in order toproduce the extra 2 % or 3 % of the mean yearly returns.

The safest form of investment isto hold short-term government bonds and government treasury bills. Presently,this provides a return of not more than 5 % each year.

Investments for Funding Retirement:

For most people drawing on theirsavings for funding current retirement, very often, the safest route makes themost sense. This would mean investments in bonds and T-bills are certain not tolose the value. Nevertheless, like all issues related to investments, even thissafest approach has certain other drawbacks.

For those retired people who haveinvested in stocks through the mutual funds, a systematic withdrawal plan workswell as an option to owning of bonds.

However, for investors who havealready invested in bonds, although the amount earned in interest from bonds issufficient for the present expenses, it may not suffice in 10 to 15 years whenthe expenses are higher. This is a sound strategy for those peopleBusiness Management Articles, who areretired and facing two decades or more years of life expectancy.

Investment
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