A high cost of living and low returns from cash savings means that many people are likely to be worried about their retirement savings. After all, having a generous nest egg from which to generate a passive income could become increasingly important as life expectancy rises across the world.
To achieve that goal, starting to invest in the stock market today could be a good idea. Through building a diverse portfolio of shares using regular investing services that focuses on favourable risk/reward opportunities, you could improve your retirement prospects over the long term.
The sooner you start investing in the stock market, the longer the time period over which compounding can boost your returns. Therefore, it makes sense to start building a portfolio of stocks today.
For investors who have limited capital, buying units in a tracker fund could provide a favourable means of benefitting from the stock market’s growth potential while limiting risk. And for those individuals who have a larger amount of capital to start investing today, buying individual shares that offer favourable valuations and growth potential could be a means of beating the wider stock market and further improving your long-term financial future.
As well as starting to invest today, continuing to invest throughout the ups-and-downs of the stock market cycle is highly important. Through buying while share prices are at lower levels, which may be caused by an economic downturn for example, you can maximise your potential profit in the long run.
One way of maintaining investment throughout the stock market cycle is to set up a regular investment in shares. This can be done easily through a variety of online sharedealing providers, and can cost less than the standard charge of a trade.
Regular investing helps to limit the impact of your emotions during the most opportune moments to buy stocks. In other words, it means that fear and worry do not dissuade you from purchasing stocks while they trade on low valuations. This has historically led to improved returns, since the stock market has always recovered from its lows to post new record highs.
Focusing on favourable risk/reward opportunities
Identifying the most appealing stocks can be a challenging process. It is easy to consider only their potential returns without focusing on the prospects for losses.
As such, it may be worth assessing the potential downsides of a specific company before buying it. This could equate to an assessment of its balance sheet, cash flow, past performance and valuation. Should it be deficient in any of these areas, it could be a good idea to invest elsewhere, or perhaps wait until the stock in question offers a more attractive overall investment opportunity.
By focusing on risk and reward, you could enjoy more sustainable returns in the long run which ultimately lead to an improved financial position in retirement.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.