McLEAN, Va. (12/7/11)--With an uncertain economy and recent swings in the stock market, anticipating retirement can be scary. If you feel desperate to catch up on building your retirement funds, you might be tempted to jump in and out of the market to avoid losses and to catch gains. Be cautious: You're taking a big risk of sabotaging your portfolio. Smart and steady saving still wins the race (USAToday.com
To help get--or keep--your portfolio in shape, take this advice from the Credit Union National Association's Center for Personal Finance editors:
Put away as much as possible. You might think that you can't afford to save any more but, really, you can't afford not to. If your employer offers a 401(k) plan, make sure to contribute what you need to get the company match. If you don't, you're leaving free money on the table. Raising your contribution by even just 1% can make a huge difference in the amount you'll save by the time you retire. An easy way to increase your contribution without noticing much is to increase the percentage you contribute each time you receive a pay raise.
Rebalance. Rebalancing means periodically reviewing and adjusting the makeup of your portfolio to keep it in line with your asset allocation goals. Similarly, when life's circumstances change, review your plan. Those situations could include buying a house, having a child, sending a child to college, divorcing, retiring, losing a life partner and the like.
Diversify. You can't control factors that cause investment values to fluctuate, but you can diversify your portfolio to smooth out the ups and downs. Diversification is spreading your money over a variety of high-quality investments rather than putting it all in one place. No single investment or investment category will perform well all of the time, under all market and economic conditions.
Try dollar-cost averaging. Dollar-cost averaging is a method of buying stock or mutual fund shares by investing the same amount of money on a regular schedule, regardless of market price. Your fixed investment buys more shares when the market is down; you'll have more shares that will grow when the market rebounds. Regular investments play an important role in building your portfolio. Some fund groups even waive initial minimum investments if you make regular investments deposited directly from your paycheck or financial services account.
For more help determining if you're on track saving for retirement, use the "How to Calculate Your Retirement Needs" calculator in the Home & Family Finance Resource Center