Last week I talked about the ideal time in your life to start investing for retirement. Ideally, for everyone that time is as soon as possible. If you already missed that landmark, then the answer is NOW! Once you have a budget in place, have no consumer debt (credit cards, student loans, etc.) and have between 3 and 6 months of expenses in an emergency fund, then your time is here. Let's invest!
One of the most important things to understand when you start deciding on where to place your future retirement money (and money for kids college savings) is the difference between savings vehicles.
The places you can park your money range from the ultra-conservative bank savings account (now averaging 1.4%) to the much higher possible returns (and higher risk) of the blackjack table in Las Vegas.
Obviously neither of these are a good long range place to hold your retirement savings. As you can see, many times higher payoffs come with higher risks. The vehicle I advise all clients to invest in for the long run (any amount of time greater than 5 years) is the stock market.
Historically speaking, the US stock market has averaged nearly 11% since 1926. Note that this high rate of return includes the Great Depression, the impeachment of 2 US presidents, the Bay of Pigs in 1961, the oil crisis of 1973, the stock market drop in 1987 (double that of the great depression), and two wars in Iraq.
This should illustrate to you the importance of investing your money and not taking it out. The point is not to invest your money and try to time the market by pulling your money out and putting it back in based on a hunch. If "market timing" actually worked, then everyone would be doing it and we'd all be rich.
I stated that I do suggest to clients that they invest in the stock market, but I do not own any single stocks. The way I believe you should invest your hard earned money is in mutual funds. A mutual fund is basically a fund either run by managers that pick stocks based on many hours of research (do you have that amount of time to devote to picking a single company?), or is set up to track an index, like the S&P 500 (which tracks the 500 largest stocks on the stock exchange).
