Have you ever tried to make your way across a crowded bar? Usually, the easiest way is to find a line of people already moving and tack on the end of them. Although this works a lot of the time, sometimes when you’re aiming for the dancefloor, you find yourself at the door instead because the line of people moving wasn’t headed in the right direction.
It’s similar with investing. It’s basically a given that stock markets act irrationally. When the stock market is rising, everyone thinks that buying is the right thing to do, and prices go up – beyond the point at which things are reasonable. When the stock market is falling, everyone thinks that selling is the right thing to do and prices plunge further. The typical novice investor intends to buy low and sell high, but in reality does the exact opposite; buying when everyone else does (when prices are high) and selling when everyone else does (when prices are low). Not really the way to get where you’re planning on going.
fear of investing is all around us
The stockmarket took a huge dive in 2008. I’ve (on paper) lost all the money I invested last year, and another 10%. It would be easy to let recent losses cloud my judgment and for me to lose confidence in the underlying basics. I’m certainly naturally inclined to retrench slightly and pull back from dangerous positions. After all, no one wants lose, and we certainly don’t want to throw good money after bad.
If you’ve looked at your pension recently, it’s certainly tempting to think that your future contributions would have better spent your wallet, or even in your emergency fund. But don’t lose out on one of the best returns you’re ever likely to make.
employer matching contributions
If you have a retirement account or pension through work where your employer contributes money if you do, then this should always be taken advantage of wherever possible.
At my place, if I contribute 2% of my earnings to a pension, then my employer will add 4% of my earnings. What’s more, this is all pre-tax. There’s no other investment where I get an instant 200% return. What’s more, it’s taken directly out of my pay so I never even miss the money.
Maybe your job isn’t quite as generous, but if there’s any contribution match at all on offer in your retirement account or pension, always take advantage of it if you can. Your future self will be really and truly grateful.
- which is better: ISA or pension?
- comparison of US and UK investment concepts
- the only thing to fear…