Is it possible to save for retirement without investing in stock markets?
Yes, it is possible to save for retirement without putting your money into stocks, or volatile funds that are made up of stocks. The stock market appeals to a lot of people for a few reasons. Over on a long time-line stock prices tend to rise, typically around 7% per year, on average. This can add up to fairly significant gains over the span of 40 years. Making use of the stock market is also relatively low effort. It’s often possible to buy a balanced index fund and simple leave it alone, putting a deposit into your fund every month or each year.
The downside to investing in the stock market is that the market can sway up or down with a fair degree of unpredictability. You may suddenly find your account is down 20% one year, or up 15% another year. It’s a shaky ride. So while the stock market trends upward over a long time-line, individual years can see your investments take a hit. This makes investing in stocks (and related funds) an uncomfortable experience for people will a low tolerance for risk. It’s also best suited to people who are over a decade away from retirement rather than people who hope to cease working within the next five years and cannot afford to have their investments drop in value.
While stocks and related funds are a popular choice for many people, there are other ways to save for retirement. Here are some alternative retirement savings plan ideas, in no particular order.
- This may seem like an obvious idea, but getting into a job with a high salary or one with a generous pension plan can help you save. If you’re making enough money then you can just put monthly deposits into a savings account and leave it. This approach isn’t viable for most people, but if your profession is highly valued, it takes all the risk out of planning for retirement as there is virtually no risk involved with savings accounts.
- Another popular approach is real estate. The value of land and the buildings on it tend to increase over time, assuming the properties are well maintained. Buying properties and renting them, or a portion of them, to others can allow you to set up a system where your property essentially pays for itself. You can then potentially buy another property and rent it to tenants, hopefully having the second property also pay for itself. In theory, when well managed, real estate can pay for itself and then give you more leverage to get a mortgage on another property. When approached carefully you may be able to sell most of your purchased properties and retire from the money made in the sale.
- Low risk investments provide another approach. Most banks and credit unions will sell you guaranteed investment certificates (GICs) and term deposits. These are accounts which are guaranteed to return a small profit, usually in exchange for leaving your money in the account for a fixed period of time (often one to five years). The profit on these options is typically low (around 1% to 6%), but the return is guaranteed, making it a lot less risky than stock investments.
- Purchasing debt is another way to go. There are a number of peer-to-peer loan platforms, such as goPeer where people can loan money (buy a portion of a debt) in exchange for the interest collected on the debt. This approach is typically viewed as relatively high-risk, but it also tends to carry the highest rate of return, typically higher than 10% per year, which outperforms the average growth of the stock market.
These are a few options you can explore when it comes to saving money and planning for retirement. Which one might work best for you will depend on your comfort level with risk and how much money you need to accumulate in order to retire comfortably.
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