The 5 Stages of Investing (Retirement Version)

I remember my journey to investing for retirement. It was a stressful and anxious experience because I had no idea where to start or what to do. However, as I made my own way through the investing landscape, I discovered that I had gone through several stages before I was comfortable enough to invest. Hopefully, knowing about these stages and recognizing them as normal will give you confidence to go ahead and take your personal finance to the next level.

Stage 1: Ignorance

You do not know what investing is, or if you do, you only know it in the context of loud-mouthed middle-aged men shouting, “BUY, BUY, BUY, SELL!” You think it’s either a way for rich people to gamble or a way to get rich by day-trading.

If you’re at this stage, you should do two things:

  1. Don’t invest right now
  2. Stop listening to those guys

Stage 2: Awareness

You are aware of investing as a method of growing wealth and helping save for retirement. You have taken a glance at your employer’s retirement plan (if you’re lucky enough to work for a company that offers one). However, you do not know much about what to choose or how much to contribute or where to start, but you know that it is important to start so you can have a secure retirement.

If you’re at this stage, you should do two things:

  1. Decide if your retirement needs a Roth or a Traditional Plan
  2. Become more familiar with your employer’s plan (if they offer one) or  open an Individual Retirement Account (IRA)

Stage 3: Paralysis

Now that you’re aware of what investing is and how it can help build retirement security, you are ready to get started! You start looking at your options are are overwhelmed by all of the options. We are talking about your retirement and you want your first decision to be the best one. Which should you pick? The result is inaction.

If you’re at this stage, you should do two things:

  1. Take a deep breath
  2. Go ahead and buy an index fund to get your toes wet (an S&P 500 Index fund is fine)

Stage 4: Cautious Optimism

You’ve bought your first index fund and you have officially begun investing for retirement! You’re ready to take on the world and you’re excited to sit back and watch your retirement account grow. You know that as long as you are patient and diligent in saving, you will be in good shape when retirement rolls around.

If you’re at this stage, you should do two things:

  1. Ensure you have a diversified portfolio (or just get a target retirement fund, these tend to be adequately diversified)
  2. Set up auto-deposit to your retirement account from your paycheck (you are less likely to spend money you do not see)

Stage 5: Comfort

You have your retirement portfolio set up and you are consistently contributing to it. You are patient and know that you’ve overcome the major stumbling blocks. There is still plenty of room to fiddle around the edges of your retirement portfolio, but the core of it has been set up and now you just sit back and wait.

If you’re at this stage, you have a lot of options:

  1. Explore other areas to diversify into (like international stocks)
  2. Explore ways to minimize your fees (on average, Vanguard funds tend to be the cheapest)

Wrap Up

Now that you are familiar with the different stages of investment, figure out where you are on the spectrum. Remember, the goal is retirement security and you are well on your way there. Thanks for continuing to keep me company on our personal finance journey!


6 thoughts on “The 5 Stages of Investing (Retirement Version)

  1. Point on style: people love numbered lists, and you have 5 here, which is a great number! Maybe the title should include the number.

    These may be questions for future posts, but they occurred to me while reading:
    1) Can you have more than one retirement plan? Say one from work and and IRA/Roth/Trad? If you’ve chosen your employer’s retirement plan, don’t they automatically take money out of your paycheck?

    2) What is a diversified portfolio? Is it a bad idea use funds from your retirement account for exploration and diversification?

    3)Is a retirement account something you ought to check on often? Or is it something you can just forget about until the proper time comes (or an emergency comes up)?


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