Investing isn't exclusive to the ultra-wealthy. It's accessible to all of us, and it's crucial if you want to build a solid retirement fund. However, it can be overwhelming, with so much information to process. In reality, retirement savings usually happens gradually. Financial expert Michael Kitces breaks the process into four distinct stages.
Traditional investing advice often assumes you have $10,000 ready to invest right away, but that's not the reality for most people. I recently wrote about my personal investing journey. I went from not understanding a 401(k) to managing my own diversified portfolio across various accounts. But this wasn’t an overnight shift; it took years of learning and gradual growth.
Kitces, a Certified Financial Planner, notes:
The common approach to saving for retirement doesn't always align with real life, where factors like income, expenses, and saving capacity fluctuate throughout different life stages. From the impact of raises and promotions (especially in the early career years) to starting a family and eventually dealing with the empty-nest phase, consistent retirement saving may not be as practical as traditional advice suggests…..
He explains that everyday people looking to invest typically go through four stages, each with its own set of challenges:
Increasing income
Saving more effectively
Growing savings over time
Protecting their nest egg
I think this perspective resonates with most people. For example, I didn’t pay much attention to my 401(k) because I wasn’t making enough to take it seriously. I did take advantage of my full employer match, but my main focus was on increasing my income rather than ensuring my portfolio was well-diversified. It’s hard to focus on saving more or growing your savings when you don’t have a lot of money to start with.
These priorities are logical, and viewing investing this way can make it less overwhelming. It gives you a clearer idea of where to focus at each stage. Kitces dives deeper into these points in his full post, so be sure to check it out through the link below.
The Four Phases Of Saving And Investing For Retirement via Rockstar Finance
Image courtesy of Jon Collier.
