These 7 sound investing tips can increase your retirement funds

Published: Friday, Nov. 9 2012 9:00 a.m. MST

Have you ever received a really hot investment tip? How many times has it actually worked out?

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SALT LAKE CITY — Have you ever received a really hot investment tip? How many times has it actually worked out?

While the so-called hot tip may end up contributing positively to your portfolio, more frequently it seems the unsolicited tip that a neighbor, co-worker or brother-in-law gives you ends up being not so hot, which has the potential to deliver a setback in your long-term investment approach. Below are some sound tips for the long-term investor.

  1. Get started early. It’s impossible to stress this point too much. Despite other financial pressures, this can often make the difference in reaching your goal. Historically, stock values appreciate in the long run, so investing over longer periods can help your appreciation potential with managed risk.
  2. Establish a regular investment program. Even experts cannot predict when prices are low and on the rise; therefore, the best strategy is to invest a set amount every month. Like any other investment, this approach cannot protect from loss or guarantee a profit, but it may help to lower the average cost of your investment purchases.
  3. Reinvest returns. By reinvesting distributions from investments, you may be able to increase your account balance over the long term. Assuming a positive return on your investment, you will realize greater benefits from the power of compounding. This is the concept of earnings on earnings.
  4. Maximize tax-advantaged retirement plans. If retirement is one of your objectives, be certain to invest in an employer-sponsored retirement plan if you are eligible. Most plans allow pre-tax contributions and tax-deferred account earnings. Don’t forget about IRAs either. Most employer-sponsored retirement plans will match your contributions up to a certain point to encourage participation. If available, make sure you are a contributing at least the amount the company is matching. For example, if your company matches up to 3 percent for each dollar you contribute, make sure you are contributing at least 3 percent of your wages to take advantage of this employer benefit.
  5. Don't be too "safe" during retirement. At retirement, preservation of capital becomes much more of a concern. However, because of inflation you should also be concerned with preserving your spending power. The greater the number of years you are from retirement, the greater the potential impact of inflation. To keep ahead of the game, you must take inflation and taxes into account for the actual amount of your investment return. “Safe” investments could be a losing proposition if they offer no growth potential.
  6. Schedule regular portfolio checkups. Your financial portfolio may need gradual adjustments as your lifestyle changes. You should review your holdings on a consistent schedule. Typically it makes sense to review your financial portfolio at least annually, whether you do so on your own or with your financial advisor. If you have a major life change (e.g. marriage, baby, job change or early retirement), a review of the impact the change may create would be prudent.
  7. Prepare for the long haul. Don’t be tempted to overreact to short-term market fluctuations; follow your plan. Chasing “hot” tips could damage your long-term plan. While human nature can make us act emotionally with respect to our investments, sticking to a well thought out investment plan is one of the most important tools investors have.

Llong-term investors with a clear view of their tolerance for risk who invest in a disciplined manner put themselves in a much better position to succeed than the average investor who has no plan and who has a tendency to succumb to their emotions.

Brett N. Karras is the President of The Karras Company, an independent registered investment advisor with approximately 800 million in assets under management.

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