Retirement Savings: Strategies To Build A Nest Egg

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M oney worries top all concerns, according to a new eTrade survey of experienced investors. And not having enough money for retirement is the biggest fear for those investors overall. It's also the top financial fret for people in or near retirement as well as people in midcareer, between the ages of 35 and 54.

And it's nearly the No. 1 worry also for investors who are 25 to 34 years old. In that age group, not understanding how to invest smartly barely edged out retirement savings woes, 39% to 37%.

How can you ease your concern about amassing a big enough retirement nest egg ?

The survey respondents already seem to know the answer. In another part of the survey, when asked what they wish they had started doing when they were younger, 48% of the investors said they wish they had started saving for retirement at an earlier age.

"Time is definitely your friend," said Lena Haas, senior vice president of retirement, investing and saving ateTrade ( ETFC ).

An early start lets you invest aggressively in growth stocks, stock funds and ETFs. It gives your portfolio time to rally from short-term market volatility, Haas says.

Starting early maximizes other benefits as well: compound growth, matching contributions in 401(k)s, tax deferral in accounts like 401(k)s and IRAs.

Young investors can offset some lack of investment savvy by investing in diversified stock funds and ETFs. That way, the tendency of equities to outperform bonds over longer periods works in your favor.

From 1926 to 2014, stocks averaged a 10.12% annual return vs. just 5.67% by bonds and 9.22% by a mixed portfolio of 70% stocks and 30% bonds, says Morningstar Inc.

Stocks' Strength

Stocks' history of outperformance also eventually makes up for market volatility. Stocks beat bonds in 71% of the 85 rolling 5-year periods from 1926 through 2014. They also topped bonds in more than 74% of the rolling 20-year periods.

Still, some investors want to focus just on recent history: the market they've gone through.

So let's look at the past 20 years, which included the financial crisis of 2007-09 and the tech bubble bursting in 2000.

If you invested $5,000 a year in SPDR S&P 500ETF ( SPY ), tracking the big-cap benchmark, by June 30 you would have amassed more than $250,000.

If you invested in a typical intermediate-term bond fund like $6.8 billion Fidelity Investment Grade Bond Fund , your balance would be nearly $181,000.

And in the $90.2 billion Vanguard Wellington Fund , which had 63.5% in stocks and 35% in bonds as of March 31, your nest egg would be almost $271,000.

Shock Absorbers

Wellington's bonds have acted as shock absorbers through downturns. Its stocks have provided lift during rallies such as the current bull market, which began in 2009.

Investing in mutual funds has an additional advantage. You can easily kick in a set amount or portion of your pay across your entire portfolio at regular intervals, a method known as dollar cost averaging.

"That way, you buy more shares when share prices are low and fewer when share prices are high," Haas said. Dollar cost averaging can lower your investment's average cost, thus boosting your return.

And it avoids the mistake of impulse trading based on stock market news -- buying high as the market rises, selling low in a downturn.

Investing through an automatic deposit plan "takes the emotion out of investing," Haas said. "It helps no matter what your age is."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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