There are different keys to the way you can set up a savings fund for your future. When looking for how to consolidate this complementary capital for your retirement, you should not focus exclusively on a single model. The idea is to be able to combine savings and investment.
For some people it seems that both options, saving and investing, are mutually exclusive. This can actually be considered a mistake in most cases. In general, a healthy portfolio over time is considered to be configured with elements of guaranteed savings, non-guaranteed savings and investment tools.
Although, temporarily, one may choose to balance one option more than the other, it is really in the combination of all these options that success lies.
When is it better to save and when is it better to invest?
It should be borne in mind that savings and investment are not incompatible. In fact, as we shall see, they can be tools that, when used well, complement each other and can help to create this future cushion to supplement the retirement pension.
In general, it is taken for granted that we understand investment as the assumption of risk and savings as the search for less risky tools for the user.
In this context, defining when to save and when to invest for retirement is relatively simple:
- Investment is fundamentally made when the distance to retirement is still long, making it possible to take advantage of compound interest, to create ample capital, which, with the time available, allows to absorb even mistakes, failures or losses.
- Guaranteed savings are applied when the retirement period is approaching and the user does not wish to take risk on the capital he owns, in other words, he wishes to consolidate the savings.
There is not really a specific period of time in which one or the other decision should be taken, in fact, probably in the intermediate zone (adulthood) of the user it is wiser to combine a part of guaranteed savings with a part of risk assumption in search of higher profitability.
When is the best time to start saving?
What most analysts agree on is that you should start saving for retirement as soon as possible, the younger you are, the higher the level of long-term risk you can assume, the later you start saving, the more complex the level of risk will be.
For example, a 25 year old person who is starting his professional career and who still has more than 42 years to go before retiring, can begin without any problem to place his money in investment products looking for high levels of profitability.
However, a 50-year-old person, who has never saved before, does not have the same room for maneuver and will have to balance risk levels and guarantee levels much more radically, since losing money with so little room for maneuver can hinder the search for the capital needed to supplement the pension.