How to maximise your retirement savings
The below article is for informational purposes only and does not constitute a product recommendation, or taxation or financial advice and should not be relied upon as such. Please consult with your financial adviser or accountant to obtain the correct advice for your situation.
When it comes to building wealth for retirement, the sooner you start, the sooner the magic of compounding kicks in. Whether you prefer stocks, bonds, property, alternative assets or a combination of those things, time in the market can help your portfolio reach great heights.
So if you’ve already started your wealth-building journey – congratulations. If you haven’t – today is the perfect time to begin using these three tips to maximise your investment returns for retirement.
1) Exploit the power of compounding
Compound accumulation is a powerful force. For example, if you start with an investment of $50,000 in stocks that returns 7% per annum, and you automatically reinvest your dividends, your investment will be worth $193,484 after only 20 years.
But your investment portfolio doesn’t stand still. If you start with that $50,000 initial investment, and invest an additional $10,000 annually (and earn the same return), your portfolio will be worth $603,439 after 20 years. At the end of year one, you've invested $50,000 and earned $3,500. By the end of year 20, you've invested $250,000 and earned $353,439. That's the power of compounding.
2) Reinvest your dividends
The fastest way to grow your portfolio is to reinvest your dividends. Commonly known as a dividend reinvestment plan, or DRP, investors can opt-in to have their dividends reinvested automatically – saving investors brokerage fees.
Brokerage fees, over the long term, can be surprisingly costly. For example, let’s say dividend reinvestment saves you $100 per year in brokerage. If we again assume a 7% return, that compounds to $10,200 over 30 years.
3) Capitalise on retirement tax concessions
Many governments offer retirement vehicles and incentives, such as SMSFs in Australia where self-directed investors can take advantage of tax advantaged investing for their retirement. In Australia for example: when you invest pre-tax income into superannuation, it is taxed at 15%, compared to a top income tax rate of 45%.
Investors would be wise to research these schemes (and consult their accountant or financial planner to discuss).
What gets measured gets managed
Your retirement may be decades away, but there’s no time to waste in building your retirement income. The investment decisions you make today could deliver tens of thousands or even hundreds of thousands of dollars’ worth of compounded returns by the time you retire.
As they say, what gets measured gets managed. That’s why investors building their retirement wealth track their investments with tools like Sharesight.
Whatever you do, just make sure you take action, because if you want to be sitting comfortably in the shade years from now, you need to plant the seed for the tree today.
Track your progress towards retirement with Sharesight
If you're investing for your retirement, there's no better tool to track your portfolio progress than Sharesight, with Sharesight you can:
- Track all of your investments in one place, including stocks, ETFs, mutual/managed funds, property and even cryptocurrency across your personal and retirement portfolios
- Automatically track your dividend and distribution income from stocks, ETFs and mutual/managed funds
- Run powerful reports built for investors, including Performance, Portfolio Diversity, Contribution Analysis, Future Income and Multi-Currency Valuation
- See the true picture of your investment performance, including the impact of brokerage fees, dividends, and capital gains with Sharesight’s annualised performance calculation methodology
- Easily share portfolio access with your accountant or financial planner for additional real time portfolio insights
Sign up for a FREE Sharesight account and get started tracking your investment performance (and tax) today.
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