Plan for Retirement Now with These Investment Tips

You've probably heard some variation on the Chinese proverb that says, "The best time to plant a tree was 20 years ago. The second best time is now." The same is true with planning for retirement. If you're fresh out of college, then congratulations: your "20 years ago" is now, and you have the opportunity to eclipse pretty much everyone else once retirement arrives.

But if you didn't start saving for retirement in a 401K at 21 or 22, it's OK: start now and you'll still be far better off than if you do nothing. Here are some investment principles and tips to keep in mind regardless of how old you are or how you earn a living.

Risk Management Depends on Your Age and Investment Style

Investment styles are as individual as, well, individuals. But some principles hold for many types of investors. If simplicity is your thing, then you'll find much to admire in Warren Buffett's "buy and hold" strategy with high quality stocks. It has certainly worked for him, but if you're getting close to retirement age, there's only so much this principle can do. You still need to balance risk and reward, and you can do this by understanding concepts like "beta" and "r-squared."

Beta is an indicator of volatility. An investment with a beta of 1.2 moves 20% more than the market - up or down. Lower beta means an investment is less volatile. R-squared measures correlation between a portfolio and an investment index. A high r-squared (80% or greater) indicates an investment can benefit or lose significantly as an index moves. These values can help you choose investments more carefully.

If Time Is on Your Side, Make the Most of It

Short term, stocks are volatile, because they reflect day-to-day and month-to-month emotions and situations. But over time volatility diminishes. Generally, you'll lose more money trying to predict market direction and reallocate on the fly than if you pursue your overall investment strategy through up and down markets. Of course, you should diversify investments, because spreading risk helps you avoid a catastrophic loss should a single investment go bad.

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If you're under 30, you can worry less about volatility, compared to your colleagues who are over 50.  Crestmont Researchshowed that if you pursue an informed "buy and hold" strategy, you're not unreasonable in expecting an average 10% annual return over any given 10-year period. Also if you're under 30, keep in mind that while time is strongly in your favor, time has to have something to work with, which is why you need to invest for retirement starting right now.

Investing Isn't "Set It and Forget It"

"Buy and hold" isn't the same as "Set it and forget it." While trying to outguess the market short term is impractical and counterproductive, you should keep up with what's going on in the world of finance and retirement investment to see where the opportunities lie. Furthermore, as you get closer to retirement age, you should generally take on new investments that are less risky, or re-allocate assets so you're exposed to less risk as retirement age approaches.

Rebalancing your portfolio annually is the best strategy for most people. While you don't want to aggressively try to accommodate small changes in the markets, an annual portfolio checkup is smart. A T. Rowe Price study showed that over a 20-year period, investors who rebalanced their portfolios annually benefitted by almost $20,000 over those who tried to call the market by rebalancing more frequently.

At Some Point You Need to Consider Taxes

It's not simple, but you need to be aware of the tax consequences of your investments. There are several things you can do to minimize the bite the IRS takes from your investments. For example, capital gains taxes favor assets held longer, and losses on sales of assets can offset capital gains or reduce the income on which you'll pay taxes. If investment expenses (like legal costs and investment counsel) exceed 2% of your adjusted gross income, they can be deducted from your income. If you think this is complicated, you're right, and that's why there are certified financial planners and tax accountants. The money they save you usually more than offsets their fees.

One easy step anyone can take to track progress toward retirement is using Mint. With Mint, not only can you track your checking, savings, and credit card accounts in one place, you can track your retirement investments too. No more logging onto multiple sites or waiting for your quarterly statements to arrive to learn where you stand with retirement accounts. Mint gives you the power of instant information, so you can work today toward a happier retirement.

Next step: Sign up for Mint and track all your accounts in one place.