- to find the gap between total current assets and your total investment goals - how far is there to go?
- as a basis for filling in the gaps or making changes to the mix to achieve a balance - what is called diversification or spreading of risk - of your investments.
Your income and what you can take out of it to invest is another decision to make. Regular, small amounts over many years can grow to huge totals. Use the Advantages of Early Investing calculator at the Fiscal Agents website to play with the numbers and see what amount would get you to your goal. Above all, just get started, no matter how small the sum, and make the setting aside automatic. Don't rely on yourself to "get around to it" because if you are like me and most other people, it won't happen.
In my opinion, these are the resulting investment do's and don'ts:
- if your job is relatively secure and unaffected by the stock market and you will be receiving an inflation adjusted defined benefit pension that will provide most of your retirement spending needs(does this sound like you, teachers, government and health care workers?), then do invest in the stock market/equities, not GICs or other forms of fixed income
- if your job is susceptible to downturns, do include a healthy proportion of stable fixed income in your investments; especially do not invest only in your employer's stock or even that industry (as a former high tech worker who got laid off and had a lot of plummeting high tech shares, including those of my company, I can tell you the ouch factor is high) though stock purchase plans can be a worthwhile exception
- do invest in stocks when you are young and can take the extra risk of stock investing for the potential higher long term returns of stocks to reach the large amounts needed for a comfortable retirement
- if you are just starting out investing with small amounts, then you are better off in collective investments like mutual funds and Exchange Traded Funds (explained in the next post) that spread risk over many companies