3. They invest early and over decades, not years.
Young retirees don’t have access to any investing secrets. Instead of trying to beat the market, they keep it simple. Many use indexing and asset allocation as a steady, long-term investing game-plan that happens over decades, rather than months or years.
Early retirees also started investing earlier than their peers, giving compound interest extra time to work its magic. To illustrate the power of investing early, Jim Wang of WalletHacks points out that, assuming a standard 7 percent return, someone who invested $100 a month from age 20 to 30 would still end up with more money than someone who invested $100 a month from ages 30 to 60.
4. They avoid high investment fees.
Young retirees know to avoid investment vehicles loaded with high fees. “A lot of people know they need to start investing, but they don’t really know how to get started,“ says Nate Tsang from the financial comparison site InvestmentZen.com. “As a result, they look to their bank for investing advice.
“The problem is that most banks promote actively managed funds that charge exorbitant fees, despite academic research showing that these funds consistently underperform the S&P 500.”
So what’s a cost-effective alternative? Robo-advisors are an emerging technology that use algorithms to build and manage investor portfolios, giving novice investors low-cost access to sophisticated investment management.
Tsang notes that although robo-advisors offer an easy, low-cost way to invest, they are not a one-size-fits-all solution. “Each robo-advisor has their own asset allocation methodology, different features and different fee structures,” says Tsang. “Make sure you pick one with the features you need at the right price. If you’re investing in taxable accounts for example, then tax-loss harvesting might be important to you.
“You also have to compare the fees and see how they might affect your returns. Using a robo advisor comparison tool can let you quickly identify the product best suited to meet your investing goals.”