Insights

Don’t break any of these rules if you want to retire rich

If you don’t want to mess up your chances to build wealth, follow these six rules..
The post Don’t break any of these rules if you want to retire rich appeared first on The Motley Fool Australia. –

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

two retirees sitting on a bench together

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Most people want to retire rich, or at least with plenty of money to provide financial security and a chance to enjoy life.

Unfortunately, far too many people end up with too little money set aside for their later years. 

If you want to make sure you’re a wealthy retiree, then there are six rules you’ll need to follow throughout your life to get you there — and breaking any one of them could seriously damage your long-term financial prospects.

Here they are: 

1. Don’t spend more than you earn

Earning a high income doesn’t guarantee you’ll end up wealthy in retirement. And earning a low income doesn’t always doom you to struggle. 

The key factor that affects your financial security in retirement isn’t how much you earn, but how much you spend. If you’re consistently spending all of your paycheck — or worse, spending more than you earn and taking on debt — you’re never going to be rich. 

Instead, you need to live well below your means so you can save enough to build a nest egg that will support you once you’re no longer working. Saving at least 20% of your income is ideal. 

2. Invest an appropriate amount of your assets in stocks

Most people can’t just save their way to wealth because their savings rate would need to be too high.

Say that you define “rich” as having $1 million saved, and you have 30 years to get there. You’d need to save more than $2,500 per month to hit your target if you stuck your money into a high-yield savings account and earned only a 0.5% annual return on investment. 

But if you put some of your money into the stock market and earned an 8% average annual return, your monthly savings target would come down to just over $735. That’s a lot more doable, and that return is consistent with that of the broader stock market over the long run.

You don’t want to put too much into stocks, though, as you don’t want to risk outsize losses. The best option is to develop a personalized investing approach based on your age and risk tolerance. If you don’t want to do that, an easy shortcut is to subtract your age from 110 and use the resulting number as the percentage that you invest in the market. 

3. Watch your investment fees

Investment fees eat away at your returns. You need to watch what you’re paying to invest your money. 

Pay attention to:

  • Expense ratios, which are costs of owning mutual funds or ETFs expressed as a percentage of the fund’s assets.
  • Advisory fees, which are charged as a percentage of assets under management for actively managed investments. 
  • Administration fees, which some 401(k) plans charge.
  • Inactivity fees, which some brokerage firms charge. 
  • Commissions, which you sometimes pay for purchasing assets.  

Keeping your fees as low as possible can help maximize your returns so you don’t waste tens of thousands of dollars over your investing career. 

4. Build a diversified portfolio

When it comes to your retirement funds, you can’t afford to put all your eggs in one basket. Investing too much in any particular type of asset, any one company, or any one industry could put you at too great a risk of suffering outsize losses.

You can minimize the investing risk you’re taking on by buying a diverse mix of different assets.

If you’re purchasing shares of individual companies, watch the mix of companies you’re buying to ensure you end up diversified. You can also invest in exchange-traded funds, such as an S&P 500 index fund, to make diversification easier.

5. Invest for the long term

Day trading may seem like a good way to make money by capitalizing on market trends. For most people, it’s not.

While you may be able to make a profit sometimes if you get lucky, even financial professionals have difficulty consistently beating the market by actively trading stocks they hold only for short periods. 

Instead of gambling on your instincts paying off, invest in companies you’d be happy to hold on to for at least a decade. This will reduce your risk. And when you’re making a long-term commitment, you’ll have more time to devote to researching options and getting to know the companies and industries you’re investing in. 

6. Invest only in what you understand

Lastly, you can’t afford to chase obscure investments or get-rich-quick schemes with your retirement funds if you want to be wealthy. You need to know what you’re investing in, how it’s supposed to make money for you, and why you’re investing in it.

By following these six rules, you should hopefully end up saving plenty of money for retirement and investing it wisely so it can work for you and help you to build the wealth you need to live the life you deserve as a retiree.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Don’t break any of these rules if you want to retire rich appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!