As retirement approaches, many people diligently save for retirement, stashing away funds in traditional savings accounts or low-risk options.
While saving is undeniably crucial, it always has been and always will be imperative to not just save, but invest wisely also in order to ensure a robust and sustainable retirement fund.
Inflation erodes the power of savings
One of the primary reasons to embrace investment over merely saving is the insidious impact of inflation on the purchasing power of money.
Inflation diminishes the real value of currency over time, making goods and services more expensive.
While saving money in a traditional account may provide a sense of security, it’s typically unlikely to keep apace in the longer times with the cost of living.
Investing, on the other hand, offers the potential for higher returns, allowing you to preserve and grow your wealth despite the erosive effects of inflation.
Capitalising on the power of compounding:
The magic of compounding is a compelling reason to shift focus from saving to investing. Compounding occurs when the returns generated on an investment, whether through interest, dividends, or capital appreciation, earn additional returns in subsequent periods.
The earlier you start investing, the longer the money has to compound, exponentially increasing the overall returns.
This compounding effect can significantly enhance the growth of your retirement portfolio and provide a more substantial financial cushion during the retirement years.
Diversification mitigates risk
While saving is traditionally associated with low-risk endeavours, such as savings accounts, it also exposes you to the risk of lost purchasing power and limited growth.
Investing wisely involves diversifying your portfolio across different asset classes, sectors and regions. Diversification not only helps spread risk but also provides opportunities for higher returns. By carefully balancing a portfolio with a professional advisor you can mitigate the impact of market volatility and enhance the overall resilience of your retirement savings.
Meeting the opportunities of longevity
With advancements in healthcare and improvements in living standards, life expectancy has increased significantly.
Longer lifespans necessitate more substantial retirement savings to maintain a comfortable lifestyle throughout the golden years.
Investing allows you to build a more robust financial foundation, ensuring that it’ll not only outpace inflation but also account for the extended duration of retirement.
By harnessing the potential for growth in well-chosen investments, my experience shows that retirees can better enjoy a longer life.
Adaptation to evolving markets
While traditional savings options may offer stability, they often fall short in capitalising on emerging opportunities.
Investing provides the flexibility to adapt to changing market conditions, allowing you to seize growth prospects and adjust your portfolios in response to economic shifts. A proactive investment strategy with an advisor can help retirees stay ahead of inflation, optimise returns, and tackle the complexities of the continually shifting financial world.
History teaches us that making informed investment decisions will better position you for a comfortable and secure retirement, ensuring that your golden years are truly golden.
Nigel Green is deVere CEO and Founder
Also published on Medium.
