WASHINGTON — Saving for retirement can be a difficult path to navigate. With market prices and interest rates constantly changing, deciding what to invest in and how much can be daunting. However, there are steps that can be taken to make the process easier.
“You can’t get a huge return on your money, so it’s hard to know how to invest in the next five to 10 years, or even longer,” says Janet Bodnar, editor at Kiplinger Personal Finance.
Despite the recent volatility of the stock market, Bodnar still says it is the best way to invest long term.
“If you’re talking about retirement, you’re talking about potentially the next 20 to 30 years, so what happens next week in the stock market isn’t all that important,” Bodnar says
Still, the best course of action is to diversify investments, Bodnar says. The most common strategy is to adjust investments as retirement nears, she adds.
When you have a long time to save, invest mainly in stocks. As retirement gets closer, slowly transition those invests to bonds. That way, the money is more secure when there is less time to earn it back, Bodnar says.
Another strategy to use is what Bodnar calls a “two bucket” system. In one “bucket,” keep enough cash on hand and in short-term CDs to cover living expenses for about three-to-five years. In the other, invest the rest of the money in the stock market.
“You don’t need it right away, so if something happens like what happened over the last month, you’re not panic stricken and you don’t have to sell stocks in a down market,” Bodnar says.
