The last thing most of us want to think about at the end of a long day is what happened in the stock market or what mutual funds we should buy next, but we often feel obligated to take control of our finances. After all, most of us know that even if we follow all the thrifty tips we can find, if we don't invest our money we won't have enough to retire on.
But retiring without adequate savings will be the unfortunate reality for many Americans. The Federal Reserve's 2014 statistics showed that 31% of people had no money saved for retirement.
So, what if the simplest and most stress-free way to invest was also one of the best ways to invest your money? Who knew it could be smart to be lazy?
My Lazy-Person Epiphany
When I first started working, I wanted to put some of my savings into the stock market but I found that it took a significant amount of time and energy to learn how the stock market worked and to research stocks. During this period, I made some unfortunate investments and lost what was a significant amount of money for me at the time.
If I knew then what I know now, I would have gotten started investing in the stock market by investing in index funds. An index fund is a fund that owns stocks of companies listed within particular stock market indexes. These funds generally provide returns on your investment that keep pace with the average stock market return. Index funds are what I like to call the Lazy Person's retirement savings vehicles, but they also might be the Smart Person's retirement savings vehicles for the following reasons. Keep in mind that index funds may not be a smart investment for everyone, and you should consult with a financial adviser if you have any questions about how these investments work or the risks that come with them.
1. We're More Likely to Take Action
When we perceive something to be difficult, we tend to put it off. The simpler we make something the more likely we are to do it. If we expect ourselves to put time and effort into painstakingly learning how the stock market works and then diligently researching individual stocks, we're less likely to pause our cat videos and actually start our research.
2. Picking Stocks Is Difficult to Do Well
Successfully picking particular stocks often requires you spend a significant amount of time researching to be successful, and even then it's not foolproof. Even people who pick stocks for a living can make bad calls. If you don't know much about investing, this can be a huge barrier to actually getting started. The likelihood that an individual investor can beat the stock market is actually quite low.
3. You're Automatically Diversified
Diversifying your investments is key because it helps you mitigate your risk. For example, if you invested only in tech stocks and the tech sector does poorly your entire investment portfolio would lose money simultaneously. If, however, you had some tech stocks, some energy stocks, and some consumer good stocks, one sector could perform poorly and not affect the overall return of your portfolio significantly. One of the upsides to index funds is that they automatically diversify your investments, which means that you don't have to spend a lot of time picking stocks from diverse sectors.
How to Do It
You ca set up an automatic payment into your retirement or investment accounts to take one step out of the retirement saving process. Rather than having to make a contribution on a monthly or annual basis, set up a paycheck deduction
or an automatic bank transfer into your retirement or investment
accounts that you don't have to think about or consciously remember to
do. While you might have to consciously buy index funds every month or
two if you can't set up automatic purchases, you're still making the
saving aspect as easy as possible.
Culled from Credit.com
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