Opinion: Retirement investing tips for the anxious investor

Opinion: Retirement investing tips for the anxious investor

What’s your biggest fear? Spiders, sharks, maybe confined spaces? For a long time, mine has been retirement investing.

I’m 24 years old, and my heartbeat still reaches a healthy gallop, my fingers fidgeting on the keyboard, as I log into my retirement account and stare at the numbers and charts on the screen. What do they mean? Is it enough? Do I need to be saving more? How am I supposed to know if this will be enough in 40 years?

Utter terror is what Jeff Hill sees on his students’ faces when he brings up investing in his family finance class. Hill, who has a doctorate in family and human development and is a recently retired professor of family life at Brigham Young University, has taught 21,000 students family finance over the course of 10 years. “Students just think it’s so mysterious, and it’s hard to do, and you can really make big mistakes, and you don’t want to lose your money, all of those kinds of things,” Hill told me. “What I tried to do is just make it easy for people, take the mystery out of it.”

Saving for retirement is essential — yet according to U.S. Census data, fewer than half of working Americans have a retirement account. Your social security likely won’t be enough for you to live a comfortable retirement, and unless Congress reforms the system, it may not be there for you at all, as social security funds are projected to be insolvent by 2032.

So how do you start investing for retirement — and make it easy? First, fight anxiety with anxiety.

Investing anxiety, and how to handle it

Many of us fear our retirement accounts because we fear losing money, especially when we are young and don’t have a lot of cash to spare. But by not investing, we are losing money anyway because of inflation, according to Hill. From 2000–2022, inflation has averaged about 2.5%, so “if you put (your money) under your mattress, you’ll lose 2.5% to inflation every year,” says Hill. On the other hand, investing in stocks has an average return of 7%–10%, and bonds average about 4.5%–5%. You guarantee money depreciation if you don’t invest. So if your anxiety is saying you’ll lose money from investing, counter that with the guaranteed reality of losing money to inflation.

The stock market is constantly oscillating. Stocks will fall. This can also cause anxiety, but with the long game of retirement investing, you don’t really lose money until you sell your stocks. “If the stock market goes down,” Hill told me, “that is exactly NOT the time to get out of the stock market because you will solidify those losses, and you really will lose money.” Retirement investments need to stay put — especially, when the market is down — because the market will go back up eventually and your stocks will gain value again.

The miracle of compound interest

When is the best time to start investing?

Right now.

“Even investing a little bit early makes a big difference,” Hill told me. That’s because of what Hill calls the “miracle of compound interest.” Compound interest, according to Forbes, is when the interest you earn on your money is reinvested, so you earn interest on your interest. According to a compound interest calculator, if you invest $10 every month for 40 years (totaling $4,800) at a 7% interest rate, the magic of compound interest will give you $26,411.25. If, however, you invest $10 a month for only 20 years (totaling $2,400), you will end up with $5,249.65. Your money grows in both scenarios, but time really does make a difference.

Starting early is important, but how do you prioritize putting money into retirement when you also want to put money toward a house downpayment or toward paying off debts?

“I don’t think you wait to invest until you’re debt free,” Hill said. He recommends spreading out our savings to fund each of our priorities, even if it’s just a little bit toward each. Put some money into an emergency fund, put some toward debts to cover more than the minimum payment and then put some toward retirement investing. Your future self will thank you.

How to starting investing

Investing can seem overwhelming, but there are several companies out there that make it easy. Whether you create an account with Betterment, Fidelity Investments, Vanguard or another company, a Roth IRA (individual retirement account) is what Hill recommends setting up. With a Roth IRA, you pay taxes on your contributions upfront, and when you retire, you can take the money out tax free.

If you work for a company that offers 401(k) matching, that’s a great opportunity for free money. Most employers will offer up to a 4%–6% match, so it’s important to ensure that you are contributing at least enough to earn the full match.

When you start a retirement investing account, you want to ensure that your stocks-to-bonds ratio is high: around 90% stocks and 10% bonds. As you get closer to retirement, you gradually trade in your stocks for bonds because bonds are more stable — but they have a lower return than stocks. If you invest with a company, you can set up a target date fund with your retirement age goal, and they will adjust your ratio for you. You can also set up automatic monthly deposits to ensure that you are always adding to your account, even if it’s just a few dollars a month to start.

If you still feel anxious about your retirement account or the idea of investing, that’s okay. It’s normal to feel a little anxious about finances. But when we let our anxieties justify avoidance, that’s when we really hurt ourselves — especially our future selves. Don’t wait to invest, whether you’re in your 20s or 40s, whether you have a dollar to spare or $100. As Hill says, “I can’t imagine a time when the best time to start investing isn’t right now.”

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